Many landlords are not passing higher mortgage costs on to tenants

Many landlords are not passing higher mortgage costs on to tenants

0:04 AM, 13th October 2023, About 8 months ago 12

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UK landlords are facing mortgage costs rising quicker than rent increases in the past year – but they aren’t passing all the rise on to tenants, a new study reveals.

Octane Capital has compared how rents have increased over the past year versus the average cost of buy to let mortgage payments, based on the average price for a new tenancy and the cost of a BTL mortgage with a 40% deposit.

The study found that mortgage rates have risen by 13% year-on-year, outstripping rent price growth of 9.9%.

This is closing the gap between mortgage and rental payments, as mortgage costs now average at £982 per month, compared to £1,068 for rents.

‘Landlords are often blamed for ramping up rents’

Octane’s chief executive, Jonathan Samuels, said: “While landlords are often blamed for ramping up rents, in many cases buy to let mortgage costs are rising faster than the cost of new tenancies.

“This is particularly the case in Yorkshire and the Humber and the East Midlands, where the markets clearly don’t allow landlords to recover all their higher outgoings in the form of rents.”

He added: “This year has undoubtedly been a tough one for landlords and renters – as neither has been able to escape rising costs.”

Mortgages rise at more than double the rate of rents

The specialist property lending experts also revealed regional variations with some areas seeing mortgages rise at more than double the rate of rents.

This suggests that some landlords are not passing on all their rising costs to tenants and may be feeling the pinch in their profits.

The regions where mortgages have risen at more than double the rate of rents are Yorkshire and the Humber and the North East.

In Yorkshire, mortgage payments have surged by 15.2% year-on-year to £712, while rents have risen by 7.4% to £826.

In the North East, mortgage rates have increased by 15.4% to £547, while rents have gone up by 7.6% to £636.

London rents have increased by 12.9%

London does not follow the general trend since rents have increased by 12.9% year-on-year, exceeding an 11.4% increase in mortgage payments.

As a result, the capital’s tenants have to fork out £2,109 per month for a new tenancy, which far exceeds average mortgage repayment costs of £1,789.

In Scotland, the government’s policy of controlling rents on existing tenancies appears to be having the opposite effect for new tenancies, which are 15.8% more expensive annually at £973, a bigger percentage increase than any other region.

This compares to mortgage costs of just £643 per month north of the border, after rising by 12.4% year-on-year.

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9:14 AM, 13th October 2023, About 8 months ago

The whole point of renting is that tenants don’t have to worry about mortgage interest rates.
Profits made during the ‘good years’ should be used to soften the impact when things change rather than blowing it all on fast cars and foreign holidays.
We have had more than a decade to build up a war chest and now some tenants are paying for their landlord’s financial incompetence, greed and lack of forward planning.
Of course, there are exceptions and not all landlords have huge mortgages.

Monty Bodkin

12:03 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14
It is not 'greedy' landlords who are to blame for tenants suffering.

And it is going to get a lot worse.


14:41 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14
What nonsense! Your generalisation is as bad as Shelter's.

In 20 years, the only time I took money out of my BTLs was when I was made redundant in 2008 and had just started a major refurb and extension to my resi. At the time, my rental income was 4 x my mortgage, so I had plenty of headroom. But in 2021 I had to evict a tenant who left me in excess of £20k out of pocket. That was the entire profit from that flat over 14 years! I know I'm not alone.


15:02 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14
Not sure that's the only reason people rent.
Some because they want short term accommodation, others because they haven't saved a deposit, or want to share a house.

But even so not all landlords have been in the market 10 years.

Might want to think about how robust your comments are before posting.


16:13 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14
'We have had more than a decade to build up a war chest' - no, we haven't as not everyone is in your shoes of being a landlord for a decade... Obviously landlords are not passing on mortgage increase to tenants... My 2yr fixed is 2.5%, but I need to remortgage now so from January it will be around 6%, meaning my mortgage payment will increase more than 100%. Obviously I can't incrase rent that much, so no wonder landlors are selling up...


17:31 PM, 13th October 2023, About 8 months ago

Reply to the comment left by Joanna at 13/10/2023 - 16:13
My mortgage is now within £10 of the rent. My mistake was thinking I was doing my tenants a favour by not increasing their rent over the past 6 years. I am now, and I'm afraid January's increase will be to take it closer to the local norm. I would apply more than 9%, but I believe that's the maximum permitted.That will not be comfortable for my tenant, but she's had it good, at my expense, for 6 years.


19:52 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14
I have three flats left, having sold the other seven as the tenants chose to move on, since the serious landlord battering began about six years ago. These three were our first flats when we started letting in 2006, interest rates were about the same level as now, 5-6 %, and profit margins tight. Market rent was £460-500. The credit crunch saw rates fall dramatically on our two tracker mortgages, but the others had several remortgages at prevailing rates. We've never increased rent for sitting tenants, nor did they change much between tenancies as the market rate didn't change much until about two years ago. However, the factoring charges, like most other costs, have more or less doubled in that time, to around £100 per flat per month. Our current tenants still pay £490 and £500, while the local rate has only recently shot up to £795. During the "good years" those two cheap mortgages helped cover costs across the whole portfolio and gave us a bit of leeway to make some improvements like new windows, boilers and a kitchen refurb. Those two mortgages are now £300 per month more each, an increase of over 1000% and the third comes off its fixed rate next June, but the rents remain unchanged. We'd be allowed to increase the rents by £15, or £30 if we appeal to the Housing tribunal. Hardly worth the trouble. Instead we are encouraging the tenants to buy, and at least they are thinking about it. I'm not remotely tempted to remain in the market, even with rents at £795 and rising. We have no idea what the two governments might come up with next, and nothing seems too outlandish to be off the table.


20:07 PM, 13th October 2023, About 8 months ago

Reply to the comment left by C-cider at 13/10/2023 - 09:14Also, we have had three "foreign holidays" in 46 years together, primarily to visit friends or family, and always had second hand cars which we kept until they died, none of them fast, but rather practical for carrying furniture, tools and DIY materials for the continuous maintenance of rental properties and our own homes. Even at the peak with ten rental properties, we never earned more than one minimum wage in profits. I consider we managed prudently and never got into difficulty, but we weren't greedy. The plan was only ever to earn a living, not get rich.


20:34 PM, 13th October 2023, About 8 months ago

What a surprising insight that Banks are running a business to make profit while Landlords struggle to follow the market.

The Bank of England MPC meets every three weeks to decide what to do with the base rate. Banks will follow depending on the funds they have borrowed from the wholesale finance market. LTV certainty that the mortgage value can be recovered.

The Section 13 of the Housing Act allows Landlords to raise Rent after a year. No certainty that the new rent will be agreed or paid. Tribunal to decide what is a market rent.

Every three weeks or once a year.

Does that sound like a fair and balanced market to you?


10:44 AM, 14th October 2023, About 8 months ago

Reply to the comment left by Morag at 13/10/2023 - 19:52Your situation is very similar to mine. The use of low-cost mortgages has been helpful in covering 'losses' elsewhere from time to time, but a point which is never discussed in the media is that of landlords not increasing rents over the years.
I've mentioned it before, but one of the reasons renters are finding recent increases such a shock, is the fact that many have been subsidised by their landlords for many years. Those landlords' 'generosity' is not appreciated because all the furore is over outrageous increases. Yes, some landlords are taking advantage, and I guess it's just business, but even so, the maximum for in-situ tenants is only 9% every 12 months. I don't know how or where landlords are rachetting up rents by 25%!
But BTL was never a business for me over the past 20+ years, which probably explains my naivety in thinking low rents were OK because I could afford it. No more!
Maximum increases each year, and I should be back up at the local median in a year's time [albeit my remaining mortgage is just below the rent!], but I hope to be out of the PRS by then. If my tenant complains, it may be quicker!

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