How have rising rates affected landlords?

BTL mortgage rates have soared from an average of just 1.65% in October 2021 to 5.72% in October 2023

How have rising rates affected landlords?

Landlords using interest-only mortgages are now paying 283% more in monthly interest costs, a figure that has gradually increased since the latter part of 2021, when the base rate started to climb.

Data analysis from specialist property lending experts Octane Capital, highlighting the dramatic effects of rising interest rates, also revealed that those making a full monthly repayment have seen the monthly cost of their mortgage climb by 71%.

According to the study, buy-to-let mortgage rates have soared from an average of just 1.65% in October 2021 to 5.72% in October 2023. Meanwhile, property prices have also risen from £363,333 in 2021 to £291,385 in 2023, further compounding the financial challenges for prospective investors.

Consequently, the average landlord now shoulders a monthly repayment burden of £1,371 when opting for full monthly repayments, while those electing to pursue interest-only payment structures grapple with a more substantial cost escalation, reaching £1,042 per month.

The good news for mortgage holders is that the cost of two-year fixed rates has recently started coming down again, falling slightly from 5.87% to 5.72% between October 2022 and October 2023.

Before the Bank of England started raising the base rate two years ago, Octane Capital’s research showed that the average buy-to-let mortgage rate had been in steady decline due to the base rate remaining at historic lows since 2009.

At that time, the average monthly mortgage payment on a buy-to-let mortgage was significantly lower than today, with landlords making a full monthly repayment paying an average of £804 per month, while those making interest only payments were paying just £272 per month.

“It’s been a challenging year for the nation’s landlords, as mortgage repayments have dramatically eaten into their profit margins, margins that have already been reduced due to a string of legislative changes from the government in recent years,” Jonathan Samuels (pictured), chief executive at Octane Capital, commented.

“Those who opt to pay an interest only payment have seen a particularly large jump in the monthly cost of their mortgage, and so it’s no wonder many landlords are dubious about their future in the sector and the profitability of their portfolio.

“One positive is that buy-to-let rates now seem to be on the slide, after increasing rapidly between 2021 and 2022. With the Bank of England holding the base rate since August, it seems that trend could continue as we move into 2024.”

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