How rising interest rates could hit BTL landlords

Since most buy-to-let landlords are heavily reliant on mortgages, there is a potential regional impact should interest rates rise again, research reveals.

Property lending experts Octane Capital says that 78% of the average BTL portfolio has been financed by borrowing across England and Wales.

The firm says that landlords in the East Midlands are the most reliant on mortgages where 97% of properties are held with a loan.

This is followed by the West Midlands and Wales, where 89% and 83% of investment properties are currently financed with a mortgage.

‘Cost of mortgages has been a challenging storm for landlords’

Jonathan Samuels, the chief executive of Octane Capital, said: “The rising cost of mortgages has been a challenging storm for landlords to weather, and considering their reliance on mortgage finance it’s easy to see why.

“In much of the country, the overwhelming majority of investment properties are held with a loan, meaning those landlords will have no choice but to raise rents to compensate for rising interest rates.

“This is particularly the case in the East and West Midlands, where many will be feeling the pinch when they remortgage going forward.”

He added: “Investors in Yorkshire and the Humber are least affected, with a third of investment properties being owned outright, so some landlords should be shielded from the tougher market conditions.”

Make the economics of their investment work

The lender’s research suggests that landlords in the East and West Midlands, along with Wales are at the greatest degree of vulnerability because they will struggle to make the economics of their investment work with higher interest rates.

As a result, the private rented sector (PRS) could see a high number of landlords exiting the market and putting their portfolio properties up for sale.

Yorkshire and the Humber is the area with the lowest proportion of properties held with a loan, at just 67%, meaning investors are less affected by rising rates in the region.

A relatively low ratio of properties is also mortgaged in the South West and the North West, at 67% and 70% respectively.

The research comes as the Bank of England might continue raising interest rates to combat inflation, despite holding rates at 5.25% after its last monetary committee meeting.

This could have a significant impact on buy to let landlords, as borrowing becomes more expensive and a deluge of BTL properties for sale could hit the UK’s house prices.

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