BTL landlords are facing a shocking 80% rise in borrowing costs

BTL landlords are facing a shocking 80% rise in borrowing costs

0:01 AM, 8th December 2023, About 4 months ago 7

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Buy to let landlords with mortgages will struggle to break even in the next two years with their borrowing costs soaring by an anticipated 80% as they remortgage after enjoying historically low fixed rates.

That’s the verdict from the Intermediary Mortgage Lenders Association (IMLA) and its new report explodes the myth that landlords are well-heeled investors able to absorb rising costs without passing them onto tenants.

Instead, IMLA says that most landlords in the private rented sector (PRS) are small businesses making modest profits from renting properties but they now risk losing money in the next two years due to rising interest rates.

‘PRS plays a vital role’

IMLA’s executive director, Kate Davies, said: “The PRS plays a vital role in the UK’s housing landscape, providing homes to 20% of households.

“While a great deal of attention is, quite rightly, paid to the difficulties faced by tenants, there has been surprisingly little understanding of landlord finances and the strains on these, until now.

“Our research shows that many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs.”

She added: “Sadly, reality dictates that many mortgaged landlords will have no choice but to increase rents in order to keep their businesses viable, while debt-free landlords may well do the same in order to make an adequate return, even if that is lower than current returns available elsewhere.”

Financial situation for landlords in the PRS

The report, based on a survey of 1,000 landlords, reveals the following facts about the typical financial situation for landlords in the PRS:

  • Median annual rental income: £14,000
  • Median annual profit: Less than £9,000
  • Expected increase in annual interest payments by 2025: £7,700.

The report also shows that most landlords do not have significant income sources outside their rental business.

Landlords’ non-rental income is similar to tenant income

On average, landlords’ non-rental income is similar to tenant income, except in London where tenants earn much more.

  • Landlord median non-rental income (national, including London): £39,000
  • PRS tenant median income (national): £37,000
  • PRS tenant median income (London): £50,000.

The report found that 80% of landlords own one or two properties, accounting for 61% of private rented stock, while 13% are portfolio landlords (owning four or more properties) accounting for 39%. Only 10% of all rented property is held in limited companies, with 90% still held in personal names. Just 3% of the UK PRS is owned by institutional investors.

‘Tough times ahead for all parties in the PRS’

Ms Davies said: “There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved.

“Landlords’ tenacity is to be commended – it is a great relief that so many plan to stay in the sector and increase supply when they can.”

She adds: “Policymakers should beware adopting any policies which could upset what is already a delicate balance, and ensure they do nothing further to deter the small businesses which form the backbone of the PRS from continuing to invest.”

Tax and regulation have already affected the viability

The report argues that changes to tax and regulation have already affected the viability of many small landlord businesses.

While only 36% of respondents believed they were paying more tax because of the removal of the mortgage interest deduction, IMLA calculates that 58% will be paying more tax.

Meanwhile, 64% of landlords said increased regulation had pushed up their costs, rising to 73% of portfolio landlords.

When asked what impact a mandatory rent freeze would have on their business, 7% said they would be forced to sell property or exit the market.

Most landlords are committed to staying in the PRS

Despite the serious challenges to their business, the report also found that most landlords are committed to staying in the PRS for the long term.

Contrary to widespread predictions of a mass exodus, 53% of mortgaged landlords plan to buy more property over the next five years, as do 25% of unmortgaged investors.

Just 21% and 17% respectively say they will sell property in that timeframe.

This may reflect a desire to meet rising tenant demand and is welcome news in a sector which desperately needs supply.

IMLA’s report also notes that the average Return on Investment (ROI) across the board was 3.7%.

It suggests that corporate or institutional investors are unlikely to help address affordability issues in the PRS, and that the PRS will continue to rely on small businesses for supply.

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Easy rider

10:03 AM, 8th December 2023, About 4 months ago

My (tracker) mortgage has increased from 0.99% to 6.14%. That is much more than 80%.

On the positive side, my saving rates have also increased substantially.

Alison King

10:42 AM, 8th December 2023, About 4 months ago

Just had my first enquiry from a tenant who is being evicted because the property is being repossessed. I think we'll see more of this

Howard Reuben Cert CII (MP) CeRER

11:09 AM, 8th December 2023, About 4 months ago

One issue we are finding is that when a BTL mortgage borrower needs to renew a special deal which is expiring (ie coming to the end of a 2yr or maybe 5 yr fixed rate deal), that they cannot remortgage (even for the same amount) due to the new higher stress tests (125%, 140%, 145% etc) that lenders impose as their affordability criteria.

We do have a few solutions though, where lenders will allow a £ for £ remortgage based on a 100% rent to mortgage payment ratio.

Also we can negotiate product transfer deals too.

Rather than jumping from, say, 3.75% to an SVR of 9% (or higher with many lenders), my team of expert BTL mortgage brokers is here to discuss your situation and show you what eligible options you may have.


11:11 AM, 8th December 2023, About 4 months ago

I dream of an 80% increase. My reversion rate was 800% higher than the fixed rate that was ending.


17:22 PM, 8th December 2023, About 4 months ago

I was lucky, I managed to get a 10 year mortgage and I sold 12 of my properties to pay off the remaining 6. I cant see any point in 2year products as the actual product administration charge is exhorbitant

Peter Merrick

10:58 AM, 12th December 2023, About 4 months ago

Reply to the comment left by GlanACC at 08/12/2023 - 17:22
Everyone with a mortgage is suffering from increased interest rates. If they don't go down reasonably soon, there may be mass sell-offs by owners as well as landlords.

But the really egregious part is section 24 that can inflate the cost of a BTL mortgage by 33%, or even more if on additional rate tax. So a 6% mortgage is inflated by a further 2%, which is actually the rate I am paying on a couple of 5 year products I took out in 2021!


11:05 AM, 12th December 2023, About 4 months ago

Reply to the comment left by Peter Merrick at 12/12/2023 - 10:58Yup, its painful. Like most BTL mortgages mine was interest only. Out of interest (haha pun intended) I did calculate that had I not paid off my loan, and with the advent of S24 and interest rises I would be £11k a month worse off. Glad I paid off my balance by selling properties. I would advise anyone in the same situation to do the same. I sleep very soundly at night now. I also have 2 other businesses that could have subsidised the £11k, and I would advise also to get as many diverse income streams as possible - definitely helps

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