0:02 AM, 18th April 2023, About 10 months ago 3
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.”