mortgage rates

Property Investors Switch to Cash as Mortgage Rates Soar

Increasing numbers of investors are switching to cash purchases as they adapt to an era of soaring interest rates, new research by estate agents Hamptons has found. So far in 2023, its latest lettings index revealed that 59% of all buy-to-let purchases were funded by cash as investors looked to avoid high mortgage rates – significantly up from 53% in 2022, and the highest share in six years.

In the South of England, where rental yields tend to be lower, even higher numbers of investors are turning away from mortgages. In areas with average sub-5% gross yields, a record 71% of buy-to-let purchases were made with cash – a huge rise from 50% last year. Overall, this led to 61% of investor buys being mortgage-free in the four Southern regions.

In London, there was a 23% surge in buy-to-let investments made with cash, which now account for 67% of sales. This was followed by the South East and South West, with year-on-year increases of 18% and 11% respectively. 

Other areas with an increased share of investors paying by cash included Wales, Scotland, and the East and West Midlands.

However, in the North West and North East of England, locations with some of the lowest property prices and highest rental yields, the percentage of mortgage-free purchases actually fell by 2% and 3% respectively.

Overall, Hamptons estimates that the switch to cash purchases will save new UK landlords a whopping £61.9m in mortgage interest payments this year, based on an average property price of just over £187,000 with a 25% deposit.

Soaring Mortgage Costs - But Strong Rental Demand

This week, the Bank of England raised interest rates for the eleventh consecutive time. The latest increase of 0.25 percentage points takes the new base rate to 4.25% – a huge increase on the historic lows of 0.1% seen as recently as the end of 2021.

Following last week’s Spring Budget unveiled by Chancellor Jeremy Hunt, some in the industry had predicted that the base rate would stay as it was. But a surprise rise in inflation, which has now reached 10.4%, meant the Bank’s Monetary Policy Committee voted by a majority of seven to two to once again hike rates.

Clearly, rising interest rates are bad news for investors who hold mortgages, with soaring monthly repayments putting a huge strain on buy-to-let profits and in many cases forcing landlords to sell up, or jump ship to alternative investments.

Despite this, rental prices and demand continue to increase year-on-year – with average rents across the UK reaching record highs in February. Property continues to serve up many opportunities for investors, just as it always has over the years.

The Age of Mortgage-Free Investments

Although buy-to-let mortgage rates have retreated a little following the chaos of late last year, landlords continue to battle with high interest rates and hefty repayments.

Given this, it’s unsurprising that landlords are avoiding mortgages altogether and turning to making cash purchases instead.

But it’s not just spiralling mortgage rates that are giving landlords nightmares. Soaring maintenance costs and ever-more stringent legislation under the incoming Renters Reform Bill are both proving problematic for traditional buy-to-let landlords.

So, what about investments that can be made while avoiding many of those hassles?

At Avora Capital, we offer investors the chance to make a hands-free investment in our fully managed portfolio, which includes a diverse selection of property assets in lucrative sectors such as social housing, with a focus on high rental yields and the opportunity for significant capital appreciation. 

By investing with us, we provide the opportunity to earn a regular fixed share of the income without many of the drawbacks associated with being a traditional buy-to-let landlord:

  • Regular returns each quarter
  • Hands-free investment with maintenance and repairs included
  • No worrying about rising interest rates
  • No dealing with tenants or rent arrears 
  • No estate agent or management fees
  • No stamp duty to pay
  • No extensive paperwork

For more information on Avora Capital, please contact us by filling out the form below and we will be happy to help.

Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.

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