Landlords chase higher-yield properties as mortgage and maintenance costs rise

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A record 73% of new buy-to-let purchases earnt gross yields above 5% this year, up from 63% in 2016, reports Hamptons.

Its Monthly Lettings Index reveals that 23% earnt yields of 8% or above – largely helped by a move away from the capital; a fifth (20%) of London investors have bought properties in the North of England, up from 9% in 2016 and just 1% a decade ago. 

It’s hardly surprising, as London – which has an average gross yield of 4.9% – offers the weakest returns of any region in England and Wales, in stark contrast to the average 7.4% yield in the North of England, outpacing the 6.1% average.

Two-thirds (66%) of London-based investors bought properties outside the capital this year, up from just 26% a decade ago, while 29% of all properties bought as a buy-to-let are now in the North West, North East or Yorkshire & Humber, three times the figure 10 years ago. 

Base rate losses

However, the agent warns that an average higher-rate taxpaying investor with a typical 75% LTV mortgage is likely to start making a loss if the base rate reaches 2.5%.

They’ll need to yield at least 7% to stay out of the red – a figure only achievable in about 23% of local authorities in England and Wales, 65% of which are in the north of England.

Since August 2021, the average rate has risen from 1.79% to 3.51%, meaning that a landlord who bought a £222,000 buy-to-let last year will likely see their annual interest-only mortgage payments nearly double from £3,010 to £5,903 if they re-mortgaged last month. 

If the 0.5% base rate rise to 2.25% is fully passed on, this will increase payments to £6,743 for a re-mortgaging investor. As a result, net annual profit made by a higher-rate taxpaying investor who earns an average yield of 6.1% could fall from £3,198 in August 2021 to £212.

Read more: How to get the best mortgage deal.

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