Monthly interest costs have surged by 283% since 2021 for landlords using interest-only mortgages, new research from Octane Capital has revealed.
Octane Capital compared rates in October 2023, for a 75% loan-to-value (LTV) 2-year fixed rate buy-to-let mortgage, with previous rates on an annual basis over the past decade.
The average buy-to-let (BTL) mortgage rate available was in steady decline due to the base rate remaining at historic lows since 2009.
It fell from 5.06% in October 2012 to a low of 1.65% in October 2021, just before interest rates started to climb in December 2021.
Landlords making a full monthly repayment were paying an average of £804 per month, while those making interest-only payments were paying just £272 per month.
Since 2021, BTL mortgage rates rose from an average of 1.65% in October 2021 to 5.72% in October 2023.
Property prices also rose, from £363,333 in 2021 to £291,385 in 2023.
The average landlord is now paying £1,371 per month when making a full monthly repayment, an increase of 71% versus October 2021.
However, those opting to make interest-only payments on their mortgage saw a far steeper hike in costs, climbing to £1,042 per month – an increase of 284%.
However, the cost of 2-year fixed rates fell slightly from 5.87% to 5.72% between October 2022 and October 2023.
Jonathan Samuels, CEO of Octane Capital, said: “It’s been a challenging year for the nation’s landlords, as mortgage repayments have dramatically eaten into their profit margins, margins that have already been reduced due to a string of legislative changes from the government in recent years.
“Those who opt to pay an interest only payment have seen a particularly large jump in the monthly cost of their mortgage and so it’s no wonder many landlords are dubious about their future in the sector and the profitability of their portfolio.
“One positive is that buy-to-let rates now seem to be on the slide, after increasing rapidly between 2021 and 2022.
“With the Bank of England holding the base rate since August, it seems that trend could continue as we move into 2024.”
