Annual returns for landlords with buy-to-let (BTL) mortgages dropped by over £4,000 on average in April 2024, representing a 45% decrease compared to 2020, according to an analysis by the personal finance site Finder.

Finder indicated that landlords lack the incentive to invest in rental properties due to high mortgage rates, which averaged 4.73% for 2-year BTL mortgages at 75% LTV in June 2024.

The membership body for property agents, Propertymark, reported nine new applicants for each available rental property in May 2024. Concurrently, Rightmove noted that the average rent outside of London reached £1,316 in the same month.

Finder's research compared average BTL mortgage rates, house prices, and rent prices to estimate returns for new mortgage deals over time.

The analysis found that a landlord who took out a 2-year fixed-rate mortgage (75% LTV) for an average property valued at £230,318 in April 2020 would have achieved an average yearly return of £9,309 after paying interest.

However, for the same mortgage in April 2024, on a property worth £281,373, the return would be £5,087 per year, a decrease of £4,221 per property.

The value of BTL lending has decreased significantly over the past two years, from £9.7bn in the last quarter of 2022 to £4.3bn in the first quarter of 2024.

The total value of buy-to-let lending in 2023 was £18.26bn, a 56% decline from £41.36bn in 2022.

Between the last quarter of 2022 and the first quarter of 2023, the value of BTL mortgage lending fell by 40%, from £9.7bn to £5.8bn.

BTL lending remained low, with the value of loans granted down by 25% in the first three months of 2024 compared to the same period in 2023.

Liz Edwards, money expert at Finder, said: “The buy-to-let market has been stagnating over the past couple of years as rising interest rates have made it less profitable for landlords.

“Record high UK rent inflation of 9.2% was seen in March this year and, while this is slowly beginning to ease, it remains worryingly high.”

The combination of rising mortgage rates, changing house prices, and high rent inflation presents a challenging environment for the buy-to-let sector, affecting landlords' investment returns and strategies.