Property News

Why do Investors Bother with Buy to Let?

Why do Investors Bother with Buy to Let?

Prominent industry figure Jonathan Rolande says, “It is hard to see why anyone would still want to buy to let given that there seems little prospect of capital growth and returns.”

Rolande, spokesperson for the National Association of Property Buyers, says, "government indifference is making buy to let far less attractive than before, and consequently leading to a sharp fall in supply. Landlords are in the peculiar position of being a minority, apparently hated by all sides. Those struggling to buy their own home often blame them for pushing up prices, having created scarcity in the market. Tenants see them as profiteering from the crisis in housing, pushing up rents needlessly and being slow to spend money on repairs. The government seems to view them with indifference, neither supporting them nor providing any kind of strategy to make them unnecessary. There is an attitude of ‘well, if they don’t want to be a landlord, someone else will’, which means many are choosing to quit the sector already disgruntled by legislation that has made the business of renting out property far less profitable. It’s also a legal obstacle course where minor errors can trip up the unwary, often with huge financial implications.”

Rolande issues his doubts as to why investors should pick buy to let. “With more legislation on the way – EPC changes will cost many landlords dearly – it is hard to see why anyone would still want to buy to let given that there seems little prospect of capital growth and returns. In their rush to rebalance the market in favour of tenants and home buyers, the government seems to have overlooked an important point: owner-occupiers pay more than landlords. Partly because of tax breaks, higher loan-to-value mortgages and lower interest rates, owners will almost always outbid an investor buyer. We may soon end up in a situation where much-needed homes disappear from the rental market forever, before any housing stock has been built to replace it. Already beleaguered tenants will face fewer choices and inevitably, higher rents. With landlords facing this death-by-a-thousand-cuts policy, it seems once again that it will be those that can least afford it and have the fewest options that will suffer in the end.”


Landlords using cash ‘to avoid failing stress tests’ on buy-to-let purchases

Higher mortgage rates have meant that new buy-to-let purchases are increasingly being funded by cash rather than a mortgage, new research suggests. Analysis by Hamptons has found that so far this year, 59% of buy-to-let purchases in Great Britain were mortgage free, the highest share in six years and up from 53% in 2022.

The biggest shift has come in southern areas of the country, where yields tend to be lower, the agent said. So far this year a record 61% of investor purchases in the four southern region -London, South East, South West and East of England - were made in cash, up from a low of 47% in 2022. 

In contrast in North England, cash purchases have fallen year-on-year from 62% in 2022 to 60% in 2023. This means that for the first time since Hamptons’ records began, a landlord buying in the South of England is more likely to be a cash buyer than an investor buying in the North where prices are lower.

The agent said,  "this shift is being driven by today’s higher interest rate environment, higher interest rates make it harder for the buy-to-let sums to stack up, particularly in low-yielding areas of the country that generate smaller rental returns. Furthermore, it’s these low yielding areas, particularly in the South, where investors may find it difficult to pass a lenders’ stress test and explains why more are turning to cash.”

The average landlord who bought a buy-to-let in the South of England during the last 12 months achieved a 5.4% gross yield, lower than some mortgage rates, compared to 7.5% for those who bought in the North, according to the research. To avoid failing lender’s stress tests and to maintain landlord’s margins, cash has become more popular in the lowest-yielding areas of the country. A record 71% of buy-to-let purchases in areas where the average gross yield is less than 5% were mortgage free so far this year, up from 50% in 2022.

Meanwhile in areas where gross yields exceed 8%, a higher proportion of buy-to-lets are being purchased with a mortgage. Overall, Hamptons estimates that this shift towards cash ownership will save new landlords across Great Britain around £61.9m in mortgage interest payments this year. This is based on the average mortgaged investor paying £187,110 for their buy-to-let and putting down a 25% deposit.

On the flip side, it’s likely that new investors using a mortgage will pay around £405m in mortgage interest payments in 2023 if they were to buy using a 75% loan-to-value mortgage at an average rate of 5.27%. This is up from £347m in 2022 when mortgage rates were lower and there were more new buy-to-let purchases.

Aneisha Beveridge, head of research at Hamptons, said, “against a backdrop of higher mortgage rates, investors are adapting. So far this year, 12.1% of homes sold in Great Britain were purchased by a buy-to-let landlord, the same level as in 2022. While existing investors are paying down debt, new investors, particularly those wanting to buy in the lowest yielding parts of the country, are choosing cash to ensure the sums stack up. Overall, this is set to shrink the total mortgage bill for buy-to-let in 2023. The recent rise in cash purchases brings a close to landlords’ ability to access competitive mortgage deals. Sub 2% mortgage rates – available over the last few years – meant landlords who were able to buy homes outright chose instead to make the most of record low rates. Many investors spread their cash as far as it could go by topping it up with low borrowing costs to maximise their returns. However, today, investors are having to dig deeper into their savings to ensure the sums stack up on any new buy-to-lets.”


 Area 2022 2023YTD YOY
 London43% 67%23% 
 South East47%65% 18%
 South West52% 63% 11% 
 Wales63% 70% 8% 
 Scotland62% 69%7% 
 West Midlands52%57%5% 
East Midlands43%47%4%
East of Engand43%44%1%
Yorkshire & Humber61%62%0%
North West63%61%-2%
North East56%52%-3%
Great Britain53%59%6%

Landlords reveal likes and dislikes about the PRS

A massive 72% of landlords believe the private rented sector is fit for purpose, according to a new survey. The findings from the Property Redress Scheme reveal that the main reasons for their satisfaction was that the private rented sector (PRS) provides a regular income, and the current regulations offer landlords protection.

However, of the 27.8% that feel it is not fit for purpose, their main reasons are believing the government is biased in favour of tenants. Other reasons include believing there is too much regulation of the PRS leading to greatly increasing costs for landlords. Landlords feel that current PRS legislation is too complex. In the survey of 3,000 landlords, the three biggest challenges include legislation (38.7%), rent payment issues (21.5%) and property maintenance (13.8%).

According to the survey, 43.2% of landlords feel not very or not supported at all by the government and 40.5% feel quite or very supported. And 16.3% of landlords feel neither supported or unsupported by the government. Nearly half (47.9%) of landlords feel that current PRS legislation is too complex.

Some landlords are unsure whether the current legislation helps or hinders them (16.5%). Meanwhile, 35.5% feel that legislation protects both tenant and landlord and ensures the property is in good condition. 


Almost half of landlords disagree with the abolishing of Section 21
During last year, 44.4% of landlords feel very or quite positive about the industry changes in the PRS, whereas 33.2% feel very or quite negative about the changes. Almost half of landlords (49.2%) surveyed disagree with the abolishment of Section 21 and 33.9% of landlords agree to the change. A small proportion were indifferent, neither agreeing nor disagreeing with the abolition (16.9%).

More than half of landlords let their properties to families (58.4%) and professionals (51%). However, 38.6% of landlords said they are ‘indifferent’ to whether their tenant has a pet in their property. Practically, an equal number of landlords are against (31.1%) tenants with pets in their property (30.4%). Of the landlords that were surveyed, 29% currently let their property to tenants with pets.

One landlord said in the survey, “there aren’t many landlords in the sector that allow pets which gives me a competitive edge when tenants are viewing my properties. As a pet lover myself this isn’t something I want to take away from my own tenants.”


One in five landlords have negative feelings about the PRS

One in five landlords (19%) feel negatively about their business and point to government interference, market uncertainty and negativity about landlords as the reasons why, a survey reveals. The findings from Landbay found that 46% of landlords remain positive about the future of their buy-to-let business and investments, while 35% are neutral. Of the landlords who are positive about the PRS, those with 11-20 properties had the strongest sentiment with 41% feeling optimistic. For landlords with a portfolio between 4-10 properties, 26% shared the same feeling.

Strong proportion of landlords remaining positive. Paul Brett, Landbay’s managing director of intermediaries, said, it’s certainly encouraging to see a strong proportion of landlords remaining positive about the future prospects of both their business and the UK economy. After all, landlords play a critical role in the wider housing mix in the UK, with one-in-five households in England and Wales relying on rented housing. Whilst some may still feel unsure based on the current uncertainty and government policy, there are still plenty of reasons to be optimistic.”


Landlords enjoyed high occupancy rates
When asked why they felt so positive, the survey found that those landlords enjoyed high occupancy rates, strong demand and strong rental yields. They also said that sound management and good service will continue to separate landlords.

And that any new regulation and tax changes will have more of an impact on new entrants to the PRS, more than the established landlords.

Asked landlords for their thoughts on the UK economy
The Landbay survey also asked landlords for their thoughts on the UK economy with 44% feeling positive about its future and expect it to bounce back. The survey’s aim is to identify the key issues facing landlords and to establish their opinion on the future of the buy-to-let market.

In addition to business and economic expectations, landlords were asked about their plans for their properties or portfolios, for rent and for remortgaging.