The UK’s landlords are facing an increasing financial burden, as new data shows that they are now paying an annual sum of £15.0bn in mortgage interest. This represents a 40% increase compared to figures from August 2022, equivalent to an additional £4.3bn per year.
This surge counters the long-term dip in borrowing costs observed between 2015 and 2021. Intriguingly, despite landlords shouldering 43% more debt through this period, the overall mortgage interest bill saw a 3% decline due to plummeting rates.
Fast forward to August this year, and mortgaged landlords parted with an average of 37% of their rental income on mortgage expenses, a noticeable rise from the previous year’s 28%.
Parallelly, September’s data highlighted that annual rental growth in Great Britain consistently remained in double figures. Impressively, the average cost of a new let increased by 11.7% compared to the prior year.
As mortgage deals come to an end, landlords face the inevitable reality of higher rates, and this £15.0bn figure is set to ascend in the forthcoming months and years. If the rates remain stagnant, this figure is still poised to rise. The potential ramifications are vast. For instance, if the average mortgage rate, which stood at 3.4% in August, jumps to 4.0%, the total annual mortgage interest bill for landlords could rocket to £17.9bn.
Aneisha Beveridge, head of research at Hamptons, said: “With mortgage interest often being landlords’ most significant expense, the rapid rate hikes have placed considerable strain on investors.
“Even in the absence of further rate hikes by the Bank of England, we might witness the amount of mortgage interest paid by landlords surpassing £20bn within the next two years. This scenario could devour over half the amount mortgaged landlords accrue in rent.
“For a subset of investors, this might become untenable, leading them to exit, which in turn could exert upward pressure on rental prices.”
She further added: “A 10-year spell of affordable money and surging house prices enticed numerous landlords to refinance and pull cash from their buy-to-let upon remortgaging. Our studies indicate that the majority of these funds weren’t channelled back into purchasing rental properties.
“Instead, they were either invested in diverse avenues or utilised to support their offspring in securing their first home. The ascent in rates will likely reverse this financial trajectory, siphoning cash from the economy and redirecting it to the housing market as investors opt to reduce their debt.”
