With rental yields reaching a 13-year high for UK buy-to-let, the sector continues to offer strong returns for landlords. Those with lower borrowing levels have particularly benefited, as average mortgage rates remain higher than pre-2022 levels.

In times of higher mortgage rates, buyers who can afford to purchase without a mortgage save on borrowing costs and fees, and often secure a discount on the purchase price. For sellers, cash buyers offer a faster, more hassle-free sale, making them more likely to accept a lower price.

Research by MPowered Mortgages earlier this year found that cash buyers were paying an average of £28,189 less than mortgaged buyers for equivalent properties, a 9.3% discount. In the North West, this discount increased to 13.4%, while other regions showed less disparity.

In the buy-to-let market, there are typically more cash buyers than in the broader housing market. Landlords can secure better deals on properties and focus on maximizing overall returns by avoiding mortgage borrowing costs.

The cash buyers’ market remains robust. According to the latest house price index report from Nationwide, overall housing market activity has been resilient, with a noticeable pickup in transaction levels in the second half of last year. This year, all aspects of the market have been moving positively.

The report also highlights that cash transactions were particularly robust, with activity for cash buyers 2% higher than pre-pandemic levels. This trend is likely due to higher borrowing costs compared to pre-2020, pushing more buyers to opt for mortgage-free purchases.

Over the past 12 months, there has been a gradual increase in buy-to-let purchases involving a mortgage, indicating a more buoyant and optimistic market thanks to a strong rental market and falling mortgage rates. The report also notes that some cash purchases are undertaken by landlords, with activity in this space remaining buoyant.

When it comes to buy-to-let investments, there are pros and cons to using cash versus taking out a buy-to-let mortgage. The best option depends on individual circumstances and long-term goals, and landlords are advised to consult a professional before making a decision.

Cash buyers can often secure a discount compared to buying with a mortgage, providing an instant boost to potential returns. However, taking out a mortgage adds costs, as buy-to-let mortgages typically require a larger deposit and additional fees. Without monthly borrowing costs, a greater portion of the gross annual rental yield can be kept as profit.

For some landlords, using a buy-to-let mortgage allows for portfolio diversification. Instead of investing £100,000 in one property, borrowing could enable investment in two properties, spreading risk and securing dual income streams.

Recent research from Moneyfactscompare shows that buy-to-let mortgage availability is at a record high, with 3,560 products on the market. This increase in choice offers more flexibility for landlords seeking buy-to-let mortgages, making it easier to find a product tailored to their needs.

Mortgage rates are also cheaper than a year ago, with forecasts suggesting further declines this year. This is expected to attract more landlord borrowers to the market, while cash buyers are likely to continue investing due to the strength of the UK rental market.