15% jump in the proportion of London landlords buying with cash
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 The proportion of landlords buying with cash in London rose from 33% in 2017 to 48% in 2018, a 15% increase.

 However across Great Britain, the proportion of cash landlord purchases fell from 55% in 2017 to 54% in 2018. London and Wales were the only regions to record a rise.

 Rental growth in Great Britain nearly doubled to 1.1% in February 2019, driven by a 2.4% year-on-year rise in London rents.

The proportion of landlords purchasing buy-to-let homes in London with cash rose from 33% in 2017 to 48% in 2018 – a 15% increase and now the highest level in seven years (table 1). London saw the biggest year-on-year rise in the proportion of cash landlord purchases, but this comes against a backdrop of fewer homes being bought by investors in the capital last year. 

Meanwhile across Great Britain, the proportion of cash landlord purchases fell from 55% in 2017 to 54% in 2018. Wales and London were the only regions recording a rise. Scotland saw the biggest fall in cash sales. Here the proportion of buy-to-let homes purchased with cash fell (-7%) to 47% in 2018 (table 1). 

Harsher stress testing on buy-to-let mortgages, combined with the tapering of mortgage interest tax relief*, has made it more difficult and less appealing for some landlords to get a mortgage. This is particularly true in lower yielding areas such as London where landlords tend to have bigger mortgages. As a result in 2018 a higher proportion of landlords in the capital purchased with cash, often raising the money by re-mortgaging other assets. 

Historically, landlords in London were most likely to use a mortgage to purchase their buy-to-lets, but this changed in 2018. Last year landlords in the East became the most likely region to use a mortgage (table 1). 

Landlords in Northern England however were most likely to buy with cash. In 2018, 63% of landlords purchasing properties in the North did so using cash rather than a mortgage (table 1). 

The average cost of a new let in Great Britain rose to £965 pcm in February. Rental growth nearly doubled between January and February this year, from 0.6% in January to 1.1% in February. London rents drove the increase, rising 2.4% year-on-year. Meanwhile four other regions, the South East (-0.6%), South West (-0.4%), Scotland (-1.2%) and Wales (-0.2%) recorded year-on-year price falls (table 2). 

Commenting Aneisha Beveridge, Head of Research at Hamptons International, said: 

“London saw a big rise in the proportion of landlords buying homes with cash in 2018. This comes against a backdrop of fewer homes purchased by investors in the capital last year. Meanwhile across Great Britain there was a slight fall in the proportion of homes bought by cash landlords. 

“Much of this cash has come from landlords re-mortgaging to take equity out of homes they already own. By purchasing with cash, these landlords are avoiding the tax burden associated with the tapering of mortgage interest tax relief. 

“Rental growth accelerated in Great Britain in February, spurred on by a 2.4% annual rise in London rents. Rental growth in London reached the highest level in the last 12 months, meanwhile three other regions recorded rent falls.” 

 

*Changes to tax relief on buy-to-let mortgages 

In the July 2015 Budget the Government announced that buy-to-let landlords faced cuts in the amount of tax relief they could claim on mortgage interest payments. At the time of the announcement, property investors could claim tax relief on 100% of their monthly repayments. 

George Osbourne, the then Chancellor, said that by 2020 landlords would not be able to claim tax relief on mortgage interest payments and that all rental income will be taxable. Instead, landlords would receive a 20% tax credit for mortgage interest.

These changes would be tapered in over a four year period from April 2017. For some landlords, particularly higher rate tax payers, the reduction in tax relief means a cut into their overall profits 

Graph 1 – The proportion of landlord purchases bought with cash

Source: Hamptons International 

 

Table 1 – Cash landlord purchases by region (2018)

 

Source: Hamptons International 

 

Table 2 – New lets (pcm)

 

Source: Hamptons International

 

For further information please contact: 

Alison Blease 

Head of Research PR, Hamptons International 

Tel: +44 (0) 776 96 77 825 

Email: bleasea@hamptons-int.com 

 

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