What has made buy-to-let investments less appealing?
Landlords purchased 10% of homes sold across Great Britain in the first half of this year, the lowest share since records began in 2010, residential estate agent Hamptons has reported.
The latest figure represents a significant drop from the 16% recorded in 2015, before tax and regulatory changes made buy-to-let investments less appealing.
Hamptons noted that high mortgage rates, political uncertainty, and potential new rental regulations have deterred new investors. The share of investor purchases has steadily declined, reaching 9.7% in June.
If current trends continue, there will likely be 113,630 new buy-to-let purchases across Great Britain in 2024, 40% fewer than in 2015.
Landlord purchases have fallen in every region except the north east, where the share of homes bought by landlords rose slightly from 24% in 2015 to 25% in 2024.
London has seen the biggest decline, with landlord purchases dropping from 17% in 2015 to 8% this year. Scotland has the lowest level of investor purchases, with buy-to-let investors accounting for just 5% of home sales so far this year, down from 10% in 2015 and 7% in 2019.
High mortgage rates are pushing new buy-to-let investors towards high-yielding areas. Six of the 10 local authorities with the highest share of buy-to-let purchases are in the northern regions, with Sunderland topping the list at 45%. Swindon, Enfield, and Torbay are the only southern local authorities in the top 10.
Despite yields rising to record highs, the lack of new investment continues. The average investor in England and Wales this year achieved a gross yield of 7.3%, up from 7% in 2023 and 6.3% in 2015. However, higher mortgage rates and limited ability to offset these payments have reduced post-tax profits for most higher-rate taxpayers.
The share of homes sold by landlords has been falling for three years, with private landlords accounting for 13% of sellers this year, down from 14% in 2023 and 16% in 2022. Despite this, landlords are still selling more properties than they are buying, reducing the number of homes available to rent.
If trends continue, an estimated 146,060 homes will be sold by private landlords in Great Britain this year, more than offsetting the 113,630 new buy-to-let purchases in 2024. This would mean private landlords have sold 328,750 more rental homes than they have bought since 2016.
Institutional investment in larger rental developments has not fully compensated for this shortfall. There were 42% fewer rental homes on the market last month compared to June 2016.
The shortage of rental homes continues to drive up rents. The average tenant paid £1,347 per month last month, 5.8% more than a year ago. Scotland saw the largest increases, with rents on newly let properties rising 11.1% year-on-year. In contrast, London saw the slowest growth, with rents increasing by 2.7% year-on-year, the weakest since October 2021. 
Aneisha Beveridge (pictured), head of research at Hamptons, commented that the lack of new rental homes is due to fewer investors entering the market rather than a mass sell-off by landlords.
“Tax and regulatory changes introduced since 2016 have been the main culprit, but these disincentives to invest have been compounded more recently by higher interest rates and political uncertainty around the threat of more rental reform,” she said.
“The challenge for the new government, which is keen to boost homeownership, is to increase security and the quality of homes for tenants living in the rental sector without disincentivising or pushing out more landlords.
“While some of the homes that previously would have been bought by an investor have found their way into the hands of a first-time buyer, high mortgage rates and rising rents are likely to lock out many would-be homeowners over the next few years, keeping them in the rental sector for longer.”
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