Do Mortgage Buy-To-Let Investors Pay More or Less for Properties? Empirical Evidence From the UK Residential Market

In this paper, we test whether mortgage buy-to-let investors buy houses at significantly different prices compared to other buyers. The distinctive characteristic of a mortgage buy-to-let transaction is that lenders require the price offered to be explicitly tied to the rental income that the property will be able to generate. To test the existence of a price differential between the two groups of buyers, we use house price data of more than 600,000 residential unit transactions that took place in England and Wales. Using data that span the period 2014-2021, our empirical findings show that mortgage buy-to-let investors buy houses at a significantly discounted price (discount of about 4.5%) compared to other buyers. We provide evidence that home price differentials among the two buyer groups are less pronounced in a highly competitive market, such as the London housing market. We also find that the mortgage buy-to-let discount was on average higher before the 3% rise in the stamp duty land tax that took place in 2016.