London’s buy-to-let investors switch to cash to dodge high rates

MORE than two-thirds of London’s buy-to-let investors are purchasing homes without a mortgage, following the sudden end to the cheap money era.

The share of buy-to-let homes bought with cash in London has risen to 67 per cent so far this year, compared with 43 per cent in 2022, according to a report from broker Hamptons International. That’s as the share of mortgage-free purchases across Britain rose 6 percentage points in the same period to 59 per cent.

“Against a backdrop of higher mortgage rates, investors are adapting,” Aneisha Beveridge, head of research at Hamptons, said in a statement. “New investors, particularly those wanting to buy in the lowest yielding parts of the country, are choosing cash to ensure the sums stack up.”

The sharp increase in the price of a home loan has piled pressure on landlords, who are more exposed to pricier mortgages than other borrowers because most are on interest-only deals, which are more sensitive to rate increases.

Higher rates have shrunk buying power by an average of 20 per cent in the past year, according to property portal Zoopla. The average investor spent £341,000 (S$555,728) on a property so far this year, compared with £450,000 in 2022, according to Hamptons.

Rental yields in the South of England typically generate smaller returns than the rest of the country. London, which is the lowest-yielding region in the whole country, has seen the biggest jump in cash investors so far this year.

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Some 71 per cent of buy-to-let purchases where the average gross yield is less than 5 per cent were mortgage-free so far this year, up from 50 per cent in 2022. Meanwhile, a higher proportion of buy-to-lets are being purchased with a mortgage in areas where gross yields exceed 8 per cent.

“Investors are having to dig deeper into their savings to ensure the sums stack up on any new buy-to-lets,” Hamptons’ Beveridge added. “This is set to shrink the total mortgage bill for buy-to-let in 2023.” BLOOMBERG