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Property investors with the average buy-to-let mortgage are earning £4,000 less per property per year compared to 2020, according to analysis by personal finance site Finder.
This is mainly due to rising interest rates and home prices.
In April 2020, a landlord who had taken out a two-year fixed rate buy-to-let mortgage (75% LTV) on an average property worth £230,318 would have earned an average of £776 a month from rental income after interest payments. This amounts to a total of £9,309 over a year, assuming a month-to-month tenancy.
However, the same mortgage on an average property costing £281,373 in April 2024 would see an average monthly return of just £424, a 45% drop. This totals £5,087 over the course of a year, a massive drop in rental income per property of £4,221.
The average interest rate on a two-year buy-to-let mortgage with 75% LTV is currently 4.73%.
Liz Edwards, money expert at Finder, said: “The rental housing market has stagnated over the past few years as rising interest rates have reduced profits for landlords. This is having a worrying impact on an already competitive rental market, leaving renters with less choice and driving prices ever higher.”
“In March this year, UK rent inflation hit a record high of 9.2% and, although it is slowly starting to ease, it remains worryingly high. With rents continuing to rise and the number of rental properties falling well short of what is needed to meet demand, the new Government must tackle the rent crisis head on.”
The value of loan-to-rent property has fallen over the past two years, falling from £9.7bn in Q4 2022 to £4.3bn in Q1 2024.