Why are Rents going up?

11 June 2023

More than a third of buy-to-let landlords who have mortgages on their properties are at risk of being pushed into the red amid soaring borrowing costs and stricter tax rules.

The average buy-to-let mortgage rate is now just over 6 per cent — if it hits 6.5 per cent, 44 per cent of mortgaged landlords will not be making enough from rent to cover their costs, according to the estate agency Hamptons. This would rise to 54 per cent if the average rate were to reach 7 per cent.

A surge in interest rates has caused chaos in the market as mortgage lenders have withdrawn and repriced their cheapest deals over the past three weeks. The average two-year fixed-rate on a buy-to-let deal went from 5.58 per cent to 6.02 per cent and the five-year fix is up from 5.54 per cent to 6.04 per cent.

A landlord coming off a deal secured in June 2021 will be paying double the interest rate. The average two-year fix two years ago was 2.96 per cent, meaning monthly repayments of £617 on a £250,000 interest-only loan. The same landlord would now pay £1,254 a month at 6.02 per cent.

Borrowers searching for a new deal also have less choice. Lenders have pulled almost 400 buy-to-let mortgages from the market since the beginning of May. Banks and building societies were rattled after higher than expected inflation led analysts to expect more increases to the Bank of England base rate, which has gone up 12 times since December 2021.