Almost two thirds of private landlords expect to see their mortgage payments increase over the next 12 months with warnings that this trend will lead to higher rents.
Research for the National Residential Landlords Association (NRLA) has found that, whilst over a quarter of landlords said they plan to re-mortgage over the next 12 months, 60% expect their mortgage repayments to go up. The news follows confirmation from the Bank of England that the base interest rate will stay at the 15 year-high of 5.25%.
According to data from Hamptons buy-to-let investors across the UK are now paying £15bn in mortgage interest on an annual basis, up 40% over the course of the last year.
The buy-to-let market is especially exposed to the impact of higher interest rates, given 82% of mortgages in the sector are interest-only according to the Bank of England. This is compared to just 11% for owner-occupier mortgages. As a result, the Bank warns that, in the near term, “higher rents are likely, given rising mortgage costs and strong demand”.
Despite higher rents, Savills finds that landlords’ profits are at their lowest level since 2007, indicating that rent increases are not a sign of profiteering. Rising rents largely reflect the need for landlords to cover the increased costs which they continue to face.
The NRLA calls on the government to support the sector by scrapping tax hikes which have cut the supply of homes to rent and led to rising rents.
Ben Beadle, chief executive of the NRLA, said: “Higher interest rates put continued pressure on renters, as landlords are simply unable to afford growing mortgage costs.
“Ministers need to accept that tax hikes on the sector have also played a major role in the affordability challenges we now see across the rental market.
“It’s time to reverse course and develop pro-growth tax measures. Without them it is renters who will continue to struggle as demand outstrips supply and rents go up.”
Research by Capital Economics for the NRLA found that removing the 3% stamp duty levy on the purchase of additional homes would see almost 900,000 new private rented homes made available across the UK over the next ten years. As a result of increases in income and corporation tax receipts, the modelling suggests this would lead to a £10bn boost to Treasury revenue over the same period.
I’m sure I read somewhere that most buy to let’s are mortgage free. Anyone know the stats? When interest rates go up the market rate for rent goes up, and while that is bad news for some – for others – not so much. Interest only mortgages usually allow an overpayment of 10% of the original sum borrowed – when rates are low why on earth not overpay to reduce the debt rather than moan about payments later!!
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If only 20% of rental properties are heavily mortgaged and half of those landlords decide to sell, that is still 10% of the already tight rental stock leaving. I would guess that 10% less stock is enough to push rents up just due to the supply/demand dynamic.
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Whether the rental property has a mortgage or not, is immaterial to the tenant. Of course if there is a mortgage and interest rates rise then the landlord will increase the rent to compensate. Landlords without a mortgage will see higher rents advertised and put their rents up to match. So good news for either type of landlord, not so much for tenants.
I never increase rents during a tenancy, but understand that others may not have that option.
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We have lost a big % of landlords. Mainly down to regulations, high taxes, but the final nail for most of my landlords has been their mortgages expiring/rates increasing.
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Nothing to do with the impending abolition of Section 21 then?
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Multiple reasons. I would say that one hasn’t sunk in with many landlords yet.
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Landlordtoday would suggest otherwise.
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