Tenants are facing steep jumps…
UK tenants could be facing a sharp increase in the cost of renting over the course of the year as landlords start feeling the burden of soaring buy-to-let mortgage costs, according to estate and lettings agent Barrows and Forrester.
Why landlords are facing higher costs
Barrows and Forrester analysed the average monthly cost of a buy-to-let mortgage back in December 2021, when interest rates started to climb, based on a two-year fixed product at a rate of 2.9% on the average house price of £268,115 at the time.
The research shows that back in December 2021, the average cost of a buy-to-let investment would have seen landlords paying £942 per month as a full repayment, or £486 per month as an interest-only payment.
Today, 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 – a 20.1% 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.
Further analysis by Barrows and Forrester has shown 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 cost of renting across the UK market has increased by just £124 per month to £1,184.
The lettings agent noted that 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 at £297 per month for a full mortgage repayment, or £372 per month for an interest-only repayment.
Increases to come
However, those who would 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.
“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,” James Forrester (pictured), managing director at Barrows and Forrester, commented.
“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.”
Forrester added that many landlords opted 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 pointed out.
“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.”
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