Landlords who rely on finance are struggling to make a profit following dramatic rises in the cost of mortgages, analysis by estate agent Hamptons International shows.
An investor buying a home at 75% loan-to-value (with a 25% deposit) is now looking at a rate of 4.84% for a 2-year fixed rate, a far cry from a rate of just 1.53% at the start of 2020.
Landlords in higher value areas like London are being disproportionately hit because buyers need take out larger loans to afford the steeper prices.
Hamptons identified 92 local authorities as ‘unviable’ for landlords, of which 24 were in London.
The report said: “Higher mortgage rates have fundamentally changed the sums for investors.”
These developments mean the current environment favours cash buyers, who could face less competition in the months ahead.
Some 8% of landlords are said to be at the greatest risk thanks to the current situation.
Aside from the cost of finance, investors have been hit by dramatic rises in energy costs and inflation following the Russia-Ukraine war.
Meanwhile UK growth appears to have been affected by factors like Brexit – making it a tough environment for those looking to make a profit from property.
While landlords can hike rents to account for rising mortgage costs, fundamentally the amount that can be charged is depends on supply and demand in a given region – and many tenants are themselves feeling the pinch.
Richard Donnell, executive director at Zoopla, said: “We expect rental growth to slow over 2023 as affordability pressures bite, and the slowdown could be dramatic in some city centres.”
