Buy-to-let profits have plunged to their lowest level since 2007 as interest rate rises pile pressure on landlords’ finances.

Net profits for landlords with mortgages fell below 4pc in the first three months of 2023, according to new analysis from Savills estate agents. This was a significant drop compared with an average of 23pc between 2014 and 2021.

The decline in profitability has slumped following 12 successive increases in the Bank Rate, which has risen from 0.1pc in 2021 to 4.5pc. Further rate rises to at least 5.5pc are expected to add to the challenges facing landlords.

Buy-to-let mortgage rates have already risen in recent weeks as lenders price in these expectations, with NatWest raising its rates by up to 1.57 percentage points today.

Landlords used to be able to claim full tax relief on mortgage interest payments but this has been restricted since 2020, squeezing profits.

Buy-to-let investors will soon face the added costs of upgrading their properties to meet higher Energy Performance Certificate ratings under plans proposed by the Government.

Lucian Cook, head of residential research at Savills, said the forthcoming Renters’ Reform Bill, which will axe no-fault evictions and allow for open-ended tenancies, is expected to add to “investors’ caution”.

He said: “Following a boom period for buy-to-let landlords, 2023 marks a turning point for Britain’s private rented sector.

“There is a very real risk that landlords will exit the sector, particularly those with high levels of borrowing, putting increased pressure on a sector where demand significantly outweighs supply in many locations.”