The share of buy-to-let investments bought with cash stood at 62 per cent in 2017, but has been steadily falling since then, research by estate agent Hamptons found.
The stamp duty holiday has helped accelerate the trend with just over half of landlords now using cash to buy – the lowest recorded figure.
It comes as small and first-time landlords are the most likely investors to take advantage of the holiday, and are also most likely to use mortgages to fund their purchase.
Across 2020 as a whole, cash landlords spent a total of £11.7bn on new buy-to-let purchases, £1.5bn less than in 2019 and down from a record £19.8bn in 2015.
Landlords buying in the UK’s least expensive regions remained most likely to fund property purchases in cash during 2020, Hamptons said.
For example, almost two-thirds of buy-to-let purchases in Wales, the North West and North East were in cash.
In contrast, investors in the most expensive regions of the country were most likely to rely on mortgage finance. Just 39 per cent of London landlords and 45 per cent of those in the South East paid cash for their buy-to-let last year.
Rent rises grow
Hamptons also found the rate of rental growth picked up to 4.3 per cent in January, from 4.1 per cent in December.
The South East has seen the largest growth, recording a 10.0 per cent increase in rents over the last 12 months.
This marked the first time a region outside London recorded double-digit rental growth since Hamptons records began in 2012.
Growth comes amid a fall in the number of rental properties in the market, the agent added.
Aneisha Beveridge, head of research at Hamptons, said: “While investor purchases remain low compared with pre-2016 levels, the stamp duty holiday has tempted more small and first-time landlords back into buy-to-let, reversing a shift towards portfolio investors.
“Most of these new entrants are relying on a mortgage to fund their purchase, despite the changes to mortgage interest tax relief eating into the profitability of the sector for some.
“Since 2016 the rental sector has been buffeted by tax and regulatory changes, resulting in 250,000 fewer rental homes in England since the sector’s peak in 2017. But record-low interest rates on cash in the bank combined with the lure of a stamp duty holiday has enticed a new generation of investor, many of whom had no previous landlord experience.”