In February the average BTL mortgage rate fell to 5.5% which is the lowest since September 2022.
While some landlords must have felt this was a brief reprieve, it’s still much higher than 3.06% recorded in February 2022.
Sky-rocketing mortgage costs have led to reports among landlords being hit with triple figure percentage increases, driving an 18% increase in the number of arrears among BTL mortgages in Q4 23, compared with the previous three months (UK Finance).
This is a problem considering 39% of landlords own between two and four rental properties because the extra costs may be incurred several times by one individual.
The average BTL property now costs £262,288 (Zoopla), with a 25% deposit this leaves a mortgage cost of £196,716 - a total repayment of £362,402 on a 25 year mortgage fixed at 5.5% for two years.
Back in Feb 2022 when BTL rates were around 3.06% and BTL properties averaged £258,900 (Money.co.uk), the total repayment was £278,061 - a difference of £84,341 which has emerged in just two years.
More than 150,000 BTL properties were sold in the tax year up to April 23, meanwhile tenants were and remain caught in an acute supply vs demand crisis.
Reposit’s Rental Index has tracked the latest average rent at £1,117 pcm - an increase of almost a third in two years.
Aside from the mortgage increases, landlords are squeezed by the restriction on mortgage relief while the small reduction of CGT announced in the Budget is designed to boost housing availability for buyers by encouraging disposals of BTL properties, effectively shrinking the PRS, and achieving nothing for landlords choosing to remain in the sector.
Since 2015 landlords have absorbed an extra 3% stamp duty levy on additional properties while the cost-of-living crisis continues to impact with higher costs for building materials and property maintenance.
It has become more expensive and unpredictable for landlords with big unknowns hanging around such as a change in Government, the Renters Reform Bill, and questions around energy efficiency.
Around one in five landlords say they’re considering exiting, although this varies on geography. Research by NRLA shows almost a quarter (22%) of landlords planning to divest were in the South East (exclu London), while 4% were in the North East.#
If they choose to sell, the lack of supply becomes exacerbated and rents will increase off the back of heightened demand. Inevitably, cash deposits will rise and already average £1,289, according to Reposit data.
While it seems rents are jumping ever upwards, the reality is they are just about keeping pace with a landlord’s actual costs and in some cases are rising significantly slower. Savills found landlords’ profits were at their lowest since 2007, largely due to 12 successive increases to the base rate.
This suggests rent increases were unrelated to profiteering but mostly down to landlords covering their costs. This has culminated in a difficult situation for both tenants and landlords and is unlikely to abate until adequate supply is encouraged.
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