Landlord mortgage costs rise by 40%

Landlords are spending 40% more on mortgage interest year-on-year, research from Hamptons has found.

In August, mortgaged investors handed over an average of 37% of their rental income in mortgage costs, up from 28% the same month a year ago.

Annual rental growth was in double-digits across Great Britain during September, with the average cost of a new let up 11.7% on last year

The average mortgage rate on outstanding landlord debt stood at 3.4% in August, so it’s set to rise once products come to the end of their fixed and reduced periods.

Aneisha Beveridge, head of research at Hamptons, said: “With mortgage interest often landlords’ largest cost, the pace at which rates have risen has squeezed investors. Even if there are no further rate hikes by the Bank of England, we could see the amount of mortgage interest paid by landlords exceed £20bn over the next two years.

“This has the potential to eat up just over half the amount mortgaged landlords receive in rent. For some investors, this will be unaffordable, and they will likely bow out, keeping upward pressure on rents.

“A decade of cheap money and rising house prices encouraged many landlords to remortgage and extract cash out of their buy-to-let when remortgaging. Our analysis suggests that most of this money wasn’t reinvested back into buying rental homes and was invested elsewhere or used to help their children buy their first home. Rising rates will reverse this flow of finance, pulling cash out of the economy and back into the housing market as investors look to pay down their debt instead.”

Annual rental growth across Great Britain remained in double-digits during September, with the average cost of a new let up 11.7% on the same period 12 months ago.

This is the second fastest increase on record, surpassed only by August’s figure of 12.0%. The average rent in Great Britain now stands at £1,325pcm, up from £1,186 in September 2022.

Rents are rising faster in London than anywhere else. The average cost of renting a property in the capital was £322 pcm or 15.7% more expensive than it was at the same time last year.

Rental growth is lowest in Wales, at 5.2%, followed by the South West, at 7.6%.