The rise of the cash landlord is set to be one of the key characteristics of the rental market in 2023. To date, as many as 59% of buy-to-let purchases have been funded by cash. This compares with 53% in 2022 - and represents the highest proportion of such deals since 2017.
Significantly, despite higher interest rates and a tougher tax regime, landlord purchases still account for 11.9% of all transactions, lower than in 2022, but not by much.
Previously, buy-to-let purchases in cash were more common in the North of England where property prices are lower. But, for the first time since our records began, landlords who rely on cash rather than finance to add to their portfolios, have become more numerous in the South of England than in the North.
This is a direct consequence of the hike in the cost of borrowing. In 2021 and for much of 2022, landlords were able to take advantage of sub-2% mortgage rates. Today such competitive offers are no longer available and lenders’ stress tests have also become stricter.
As a result, some landlords are struggling to make the sums work; this is especially so in the South where rental yields are lower. A landlord investing in the South this year is achieving an average gross rental yield of 5.4% which is lower than the cost of some mortgage rates. The comparable average yield in the North is 7.5%,
A record 61% of buy-to-let investor purchases made in the South (London, the South East, the South West and East of England) have been in cash, against 47% in 2022. By contrast, such purchases fell slightly in in the North of England from 62% in 2022 to 60%.
The increase in such transactions in London – the lowest yielding region - has been the most pronounced, jumping from 43% to a record 67%. This shift has been accompanied by a decline in the average purchase price to £341,000, down from £450,000.
ÂThe pick-up in London cash purchases reflects a broader national trend. A record 71% of sales to buy-to-let investors where the average gross yield is less than 5% have been mortgage-free so far this year, against 50% in 2022. Meanwhile, in areas where gross yields exceed 8%, a higher proportion of buy-to-lets are being purchased with a mortgage.
Meanwhile the share of cash purchases in the North East, the highest yielding region, has dropped by 3% over the past year. More landlords are also relying on mortgage fi nance in the North West.
One result of the dash to cash will be a decline of about £61.9 million in the total new landlords’ mortgage interest payment bill. This estimate is based on an average buy-to-let property price of £187,110, with the landlord putting down a 25% deposit and borrowing the rest.
But new landlords will still pay about £405 million in mortgage interest in 2023. This estimate is also based on these landlords borrowing 75% of the purchase price of the home at a typical rate of 5.27% and putting down a 25% deposit. The comparable bill for 2022 was £347 million.
However, despite the trickier sums, there are no signs that the landlord sell-off has gathered pace so far in 2023.
