The cost of financing a buy-to-let property has surged over the past decade, with landlords facing mortgage repayments up to 64% higher than 10 years ago according to research from Benham and Reeves.
The London lettings and estate agency analysed changes in buy-to-let mortgage costs based on the average UK house price, assuming a 25% deposit and a 25-year mortgage term.
The figures show the average UK house price has climbed from £191,298 to £267,957 over the last decade, increasing the average mortgage requirement for landlords from £143,474 to £200,968.
At the same time, average buy-to-let mortgage rates have risen from 3.19% to 3.73%, adding further pressure to borrowing costs.
INTEREST-ONLY BLOW
As a result, the average monthly repayment on a standard repayment buy-to-let mortgage has risen from £695 per month to £1,031, an increase of 48.4%.
However, landlords using interest-only mortgages have seen the sharpest rise in costs. Monthly repayments on an average interest-only buy-to-let mortgage have climbed from £381 to £625 over the same period, a jump of 63.8%.
According to the research, this equates to landlords paying an estimated £5,839 more over a typical 2-year fixed mortgage term compared to a decade ago.
The findings come as landlords continue to adapt to significant regulatory change following the introduction of the Renters’ Rights Act, alongside rising compliance costs, licensing requirements and tougher energy efficiency standards.
Benham and Reeves says the combination of rising borrowing costs and legislative reform is increasing pressure across the sector, although strong tenant demand continues to support many landlords.
LEGISLATIVE REFORM
Marc von Grundherr (main picture, inset), Director of Benham and Reeves, says: “The buy-to-let sector has faced a relentless stream of challenges over the last decade and landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters’ Rights Act.
“While house prices have increased considerably over the last 10 years, higher borrowing costs have further intensified the financial burden facing landlords and this has been particularly notable for those utilising interest-only mortgages, which have traditionally formed a large part of the buy-to-let market.
“Many landlords have already absorbed significant increases in operational costs in recent years, from taxation changes and licensing requirements through to energy efficiency regulations and wider compliance obligations.”
STRONG DEMAND
But he says: “Despite this, the sector continues to demonstrate resilience because rental demand remains extremely strong and, in many parts of the country, vastly outweighs the level of available stock.
“Of course, there is a tipping point and continued upward pressure on costs will inevitably influence investment decisions across the sector.
“However, well-positioned landlords with quality stock continue to perform strongly, particularly within markets where tenant demand remains robust.”
