Higher mortgage interest rates have decimated landlords’ profits
New research from an estate agent group found buy-to-let landlords are paying 40% more mortgage interest than a year ago.
This week, Hamptons, an estate agent group based in London, published new research which outlined that buy-to-let investors across the UK are now collectively paying £15bn in mortgage interest annually.
According to researchers, this is an increase of 40% – which equates to £4.3bn – over the last 12 months and 58% since rates began rising in November 2021.
The research has also been published at a time when rents in the UK are also skyrocketing as a result of the current cost-of-living crisis. Annual rental growth remained in double digits during September with the average cost of a new let up by 11.7% on the same period 12 months prior.
Previous research by Moneyfacts found average two-year-buy-to-let rates are currently at 6.24%, which means the average landlord requiring a £200,000 interest-only mortgage will be paying around £1,040 a month in mortgage costs if buying or re-mortgaging at the moment, using a two-year fix.
In combination with repairs, maintenance, letting agent fees, void periods, compliance checks, insurance and service charges, the spiralling costs show how reliant landlords will be on upping rents in order to make a profit.
Hamptons estimates that nearly two thirds of rental income paid to mortgaged landlords will be spent paying mortgage interest if there is an average outstanding rate of 6%.
Fortunately, the rate of rent increases are beginning to slow in most regions as inflation rates are coming down, but Southern England and Scotland are resisting this trend, with rental growth continuing to accelerate from an already high level.
Rents are rising faster in London. The average cost of renting a property in the capital city was £322 pcm or 15.7% more expensive than it was at the same time last year. The average Outer London rent last month, which came out at £2,241 pcm, was higher than the Inner London rent two years ago in September 2021 which came out at £2,186 pcm.
Aneisha Beveridge, head of research at Hamptons, said: ‘With mortgage interest often landlords’ largest cost, the pace at which rates have risen has squeezed investors. Even if there are no further rate hikes by the Bank of England, we could see the amount of mortgage interest paid by landlords exceed £20bn over the next two years.
‘This has the potential to eat up just over half the amount mortgaged landlords receive in rent. For some investors, this will be unaffordable, and they will likely bow out, keeping upward pressure on rents.h
‘A decade of cheap money and rising house prices encouraged many landlords to remortgage and extract cash out of their buy-to-let when remortgaging. Our analysis suggests that most of this money wasn’t reinvested back into buying rental homes and was invested elsewhere or used to help their children buy their first home. Rising rates will reverse this flow of finance, pulling cash out of the economy and back into the housing market as investors look to pay down their debt instead.’
Images: Hamptons and OleksandrPidvalnyi
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