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Hamptons data show that cash purchases of rental properties have surged in the UK due to high mortgage rates.
The shift to cash purchases is particularly pronounced in the Southern region, where yields tend to be lower. So far this year, 61% of investor purchases in the four southern regions (London, South East, South West and East England) have been made in cash, up from 47% in 2022.
In contrast, northern England saw a year-on-year decline in cash purchases, from 62% in 2022 to 60% in 2023.
Rising interest rates are making it harder to build up your purchase-to-rent value, especially in areas with low rental returns and low yields. This means that more investors are turning to cash to fund purchases as they may find it difficult to pass lender stress tests.
The average landlord who bought a rental property in the south of England in the last 12 months achieved a total yield of 5.4%, which is lower than some mortgage rates and 7.5% for those who bought in the north. was.
London, which has the lowest yields in the country, saw a record 67% of sales purchased with cash so far this year, up from 43% in 2022. But the average investor’s budget is down from his £450,000 in 2022, with the average investor spending £341,000 on new rentals in the capital this year.
The Hamptons estimate that this shift to cash ownership will save new landlords around £61.9m in mortgage interest payments across the UK this year. However, if a new investor with a mortgage bought using his 75% loan-to-value mortgage at an average interest rate of 5.27%, he would pay around £405m in mortgage interest in 2023. There is a possibility. This is up from his £347m in 2022. At that time, interest rates on mortgages were low, and there were many new purchases from purchases to rentals.
Aneisha Beveridge, Head of Research at Hamptons, commented: Her sub-2% mortgage rates, which have become available in the past few years, mean landlords who could have bought homes outright chose to take full advantage of record-low interest rates instead. increase.
“Many investors spread their cash wherever possible by replenishing it with low borrowing costs to maximize returns. But today, investors are digging deeper into their savings to find new We need to make sure we add up to total rental purchases.”