House price growth and rate increases drive steep rise in borrowing costs
The monthly cost of a buy-to-let mortgage has risen by as much as 64% over the past decade, according to new research from London lettings and estate agent Benham and Reeves, as landlords navigate both higher borrowing costs and legislative change brought about by the Renters' Rights Act.
The firm analysed buy-to-let mortgage costs over ten years, using average UK house prices, a 25% deposit, and a 25-year term, comparing full repayment and interest-only structures at prevailing rates from a decade ago and today.
Average UK house prices have risen 40.1% over the period, from £191,298 to £267,957. With a 25% deposit, the typical mortgage loan required today stands at £200,968, up from £143,474 10 years ago. Over the same period, the average buy-to-let mortgage rate has moved from 3.19% to 3.73%.
For landlords on full repayment mortgages, the average monthly payment has increased from £695 to £1,031 — a rise of 48.4%, or £336 per month.
The steepest increase has been recorded among those using interest-only products, which remain widely used in the buy-to-let sector owing to their lower monthly outgoings and yield advantages. The average monthly cost of an interest-only buy-to-let mortgage has climbed from £381 to £625, a rise of 63.8% — an additional £243 each month. Across a standard two-year fixed term, landlords on interest-only deals are now paying an estimated £5,839 more than they would have a decade ago.
"The buy-to-let sector has faced a relentless stream of challenges over the last decade and landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters' Rights Act," said Marc von Grundherr (pictured right), director at Benham and Reeves.
"While house prices have increased considerably over the last 10 years, higher borrowing costs have further intensified the financial burden facing landlords and this has been particularly notable for those utilising interest-only mortgages, which have traditionally formed a large part of the buy-to-let market."
Von Grundherr noted that operational costs have also risen markedly in recent years, citing taxation changes, licensing requirements, energy efficiency regulations, and wider compliance obligations.
"Despite this, the sector continues to demonstrate resilience because rental demand remains extremely strong and, in many parts of the country, vastly outweighs the level of available stock," he said.
"Of course, there is a tipping point and continued upward pressure on costs will inevitably influence investment decisions across the sector. However, well-positioned landlords with quality stock continue to perform strongly, particularly within markets where tenant demand remains robust."
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