Buy-to-let turmoil as interest-only mortgage payments skyrocket

Buy-to-let turmoil as interest-only mortgage payments skyrocket

0:02 AM, 27th December 2023, About 6 months ago 2

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Landlords using interest-only mortgages have experienced a soaring 283% increase in their monthly interest costs since 2021.

The research by Octane Capital reveals the damage high interest rates have caused for landlords.

According to the report, those landlords who make a full monthly repayment have seen the monthly cost of their mortgage climb by 71%.

Comparing buy-to-let mortgages

Octane Capital compared the latest rates available (October 2023) for a 75% LTV two-year fixed rate buy-to-let mortgage and how these rates have changed on an annual basis over the last decade.

The research reveals that the average B2L mortgage rate available has been in steady decline due to the base rate remaining at historic lows since 2009.

It fell from 5.06% in October 2012 to a low of 1.65% in October 2021, just before interest rates started to climb in December 2021.

The average monthly mortgage payments on a buy-to-let mortgage was significantly lower than they are today.

Landlords making a full monthly repayment were paying an average of £804 per month, while those making interest-only payments were paying just £272 per month.

Buy-to-let mortgage rates have soared

Since 2021, 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 risen between the two periods, from £291,385 in 2021 to £363,333 in 2023, making things even pricier for new investors.

As a result, the average landlord is now paying £1,371 per month when making a full monthly repayment, an increase of 71% versus October 2021.

However, those opting to make interest-only payments on their mortgage have seen a far steeper hike in costs, climbing to £1,042 per month – an increase of 284%.

Challenging year for landlords

Chief executive officer of Octane Capital, Jonathan Samuels, said: “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.

“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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John Beattie

22:14 PM, 28th December 2023, About 6 months ago

Someone need to explain this to the dumb xxxx in charge of the Scottish government housing Patrick Harvey who’s 3% rent cap is a joke every landlord is selling up and he refuses to acknowledge there is a housing problem as a land lord I’m not the social service I am a strangled business man.

Michael Holmes

14:37 PM, 29th December 2023, About 6 months ago

What few people seem to realise is the fact that there is an 80% tax on buy to let mortgage payments. How the Government has managed to get away with this is a mystery to me. I doubt it is Constitutionally correct. It is about time the PRS lawyered up and challenged this in the High Court.

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