The latest data from Hamptons reveals a significant shift in the behaviour of property investors when funding their purchases. The recent escalation of mortgage rates has meant that an increasing number of investors have turned away from mortgages in order to finance their new buy-to-let property acquisitions.

This has resulted in a marked increase in the number of cash purchases for buy-to-let properties, with 59% of such purchases being mortgage-free in Great Britain so far this year, a record high in the last six years. This percentage is up from 53% in 2022.

“The biggest shift has come in Southern areas of the country, where yields tend to be lower. So far this year a record 61% of investor purchases in the four Southern regions (London, South East, South West and East of England) were made in cash, up from a low of 47% in 2022,” according to Aneisha Beveridge, Hamtons head of research.

However, in contrast, in the North of England, the percentage of cash purchases has fallen year-on-year, from 62% in 2022 to 60% in 2023. This trend has led to a unique situation where a landlord buying in the South of England is more likely to be a cash buyer than an investor buying in the North, where property prices are generally lower.

The shift towards cash purchases is a result of the current high-interest-rate environment, which has made it more challenging for buy-to-let investors to secure mortgages, particularly in low-yielding areas of the country that generate smaller rental returns. In these areas, investors may find it difficult to pass lenders' stress tests, which is why more are turning to cash purchases.

The average landlord who bought a buy-to-let property in the South of England during the last 12 months achieved a 5.4% gross yield, lower than some mortgage rates, compared to 7.5% for those who purchased in the North.

Despite these trends, the buy-to-let market continues to show growth potential, with rental growth accelerating in February to a ten-month high. The average rent on a newly let property in Great Britain was up 10.0% year-on-year.