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0:02 AM, 18th April 2023, About A year ago 3
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Landlords haven’t yet passed on their rising mortgage costs to tenants, but that could be about to change, research reveals.
Estate and letting agents Barrows and Forrester warn that tenants could be facing a sharp increase in their rent bills as landlords battle soaring buy-to-let mortgage costs.
The firm has analysed the average monthly cost of a two-year fixed BTL product at a rate of 2.9% on the average house price of £268,115.
Its research shows that in December 2021, the average BTL mortgage would cost landlords £942 per month as a full repayment, or £486 per month as an interest-only payment.
Fast forward to today and the same mortgage on the current average house price of £289,818 would require a full monthly repayment of £1,133, or a monthly interest-only payment of £703.
That’s a 20% increase in the average monthly cost of a full monthly repayment, equating to £190 more per month, or a 44.6% increase in the average monthly interest-only repayment adding £217 more to the monthly cost.
James Forrester, the managing director of Barrows and Forrester, said: “As it stands, the nation’s landlords are yet to hand down the far higher cost of borrowing to their tenants and while rents have climbed of late, they haven’t increased at the same rate as the monthly cost of a mortgage.
“This is partly due to the fact that many landlords will have secured a favourable rate on a fixed product before interest rates started to climb.
“But those that managed to do so are likely to be approaching the end of their fixed term this year and will be hit with far higher rates when they do.”
The estate agency says that so far, tenants have yet to be hit with a rental increase in line with the higher cost of buy-to-let borrowing – since December 2021, the average monthly rent has only increased by just £124 per month to £1,184.
Even in London, where rents have increased by £227 per month since interest rates began to increase, the average cost of repaying a buy-to-let mortgage has increased by a greater margin; by £297 per month for a full mortgage repayment, or £372 per month for an interest-only repayment.
However, for landlords who would have secured a more favourable rate prior to the first interest hike in December 2021 will be approaching the end of their fixed term this year, meaning tenants could be facing higher rents, with landlords left with little other choice to cover the higher cost of borrowing.
Mr Forrester said: “Many landlords opt to pay an interest-only payment to service their loan while benefiting from the rental income and the capital appreciation of their portfolio.
“So, whether they are entering the market now, or looking to lock in a new rate for a fixed period, their monthly cost is going to have increased considerably.”
He added: “Unfortunately for the nation’s tenants, they are left with little choice but to recoup this higher cost via an increase in rents and so we expect to see sharp upward growth in the average cost of renting as the year progresses.”
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GlanACC
11:02 AM, 18th April 2023, About A year ago
Yawn, again landlords trying to cover interest rate rises which they should have factored in to their rent when buying the property (I always factored in interest rates of 7.5%). Good luck in getting the money out of the tenant who almost certainly wont be able to afford it and is likely to default. Issue a S21 to get the tenant out, good luck in that as well as the council will tell the tenant to sit tight until the bailiff breaks down the door which will likely be 12 months later. I predict (for certainty) many landlords going under this year or forced to sell because they didnt go into BTL with their eyes open, they probably thought i was a quick buck.
Monty Bodkin
12:55 PM, 18th April 2023, About A year ago
Reply to the comment left by Derek STOBBS at 18/04/2023 - 11:02
"Yawn, again landlords trying to cover interest rate rises which they should have factored in to their rent when buying the property (I always factored in interest rates of 7.5%)."
What makes you think they don't? (most landlords stress test a lot more than 7.5%)
Good luck in getting the money out of the tenant who almost certainly wont be able to afford it and is likely to default."
If that is the case then a lot better tenant selection and affordability checks are required.
Reluctant Landlord
16:57 PM, 18th April 2023, About A year ago
regardless of interest rates, rents WILL increase....
Costs of materials and labour increasing = maintenance and work cost going up.
Annual Gas certs/5 yearly EICR certs cost increasing for them to be done, not to mention if work is required thereafter.
Selective Licencing costs (not just licence but additional work cost?)
Talk of S21 going - LL's increasing rent now to possibly compensate in advance of court costs and lack of possible rent/further arrears.
EPC implications - up the rent now to account for future inevitable outlay?
Negative talk of rent freezes/caps - all this does is make a rent increase more likely now, as you might not be able to later!
NB - for those LL who have not chosen to increase rents their tenants wont want to leave, so are they planning to subsidise them forever, or start to raise the rent to what the local rents actually are each year?