The mortgage curiosity paid by landlords within the UK has elevated by over 40 per cent since August final yr, including £4.3bn to their funds, information from an property agent group confirmed.
The Hamptons Letting Index for September confirmed that mortgage curiosity funds had been 58 per cent, or collectively £5.5bn greater, than when common charges fell to a low in November 2021.
Altogether, buy-to-let buyers are presently paying £15bn in mortgage curiosity.
Hamptons stated the rise was reflective of latest buyers buying on greater rates of interest, an increase in tracker pricing and the expiry of mounted fee phrases.
The agency stated this was regardless of a fall within the variety of excellent buy-to-let mortgages since November final yr which indicated that buyers had been both paying down their debt or promoting up. The worth of excellent buy-to-let mortgages has additionally stayed comparatively flat though there are fewer excellent.
The common fee on excellent landlord mortgages was 3.4 per cent in August however Hamptons warned that if this rose to 4 per cent, the money spent on mortgage curiosity funds would rise to £17.9bn.
If charges common at 5 per cent, this may rise to £22.4bn and at six per cent, will quantity to £26.8bn.
Eating into rental funds
According to Hamptons, 26 per cent of all rental revenue within the UK goes in the direction of mortgage curiosity, which is up from a low of 17 per cent in January final yr. Meanwhile, the common mortgaged landlord paid 37 per cent of their rental revenue on mortgage curiosity in August, up from a low of 24 per cent of November 2021.
Hamptons stated if common charges on excellent landlord mortgages rose to 4 per cent, round 43 per cent of rental revenue can be spent on curiosity and at 5 per cent, this could rise to 54 per cent.
With common charges of six per cent, this could imply landlords spend 64 per cent of rental revenue on mortgage curiosity funds.
Aneisha Beveridge, head of analysis at Hamptons, stated: “With mortgage curiosity usually landlords’ largest cost, the tempo at which charges have risen has squeezed buyers. Even if there aren’t any additional fee hikes by the Bank of England, we might see the quantity of mortgage curiosity paid by landlords exceed £20bn over the subsequent 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.”
Average rents rise at report fee
The common cost of a newly let property rose by 11.7 per cent yearly in September, which was the second quickest enhance on report. The common hire rose to £1,325 per 30 days, up from £1,186 a yr in the past.
Rents are rising quicker in London, Hamptons stated, with the common cost leaping by 15.7 per cent or £322 a month when in comparison with final yr.
Nationally, most areas recorded rental rises within the double digits.
Decline in rental properties
Hamptons famous that though mortgage debt held by landlords elevated by 43 per cent between March 2015 and November 2021, over that point, there was only a 4 per cent rise within the variety of rented properties.
The agency stated this advised that landlords weren’t borrowing to purchase extra properties.
Beveridge added: “A decade of low cost money and rising home costs inspired many landlords to remortgage and extract money out of their buy-to-let when remortgaging. Our evaluation suggests that the majority of this money wasn’t reinvested again into shopping for rental properties and was invested elsewhere or used to assist their kids purchase 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.”
Shekina is the business editor at Mortgage Solutions. She has over 4 years’ expertise within the B2B publishing market, with earlier industries together with the accounting, pet, funeral, hospitality, retail and jewelry trades.
She presently studies on present occasions within the mortgage market and liaises with monetary shoppers to supply sponsored content material.
Follow her on Twitter at @ShekinaMS
