Monthly interest costs have surged by 283 per cent since 2021 for landlords using interest-only mortgages, research shows.
Octane Capital compared rates in October 2023, for a 75 per cent loan-to-value two-year fixed rate buy-to-let mortgage, with previous rates on an annual basis over the past decade.
The average BTL mortgage rate available was in steady decline due to the base rate remaining at historic lows since 2009: it dropped from 5.06 per cent in October 2012 to a low of 1.65 per cent in October 2021, just before interest rates climbed steeply until this autumn.
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 per cent in October 2021 to 5.72 per cent 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 per cent versus October 2021.
But landlords making interest-only payments on their mortgage saw a far steeper hike in costs, climbing to £1,042 per month – an increase of 2843 per cent.
Octane chief executive Jonathan Samuels says: “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.”
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Too many mistakes in this article. It needs to be taken off and the incorrect figures sorted and then it can be posted.
"The substantial surge in interest rates is poised to have a profound impact not only on LLs but also on tenants, who may face higher rent increases as a result. As we approach January 2024, many landlords are anticipating elevated tax bills, given that some rents may no longer adequately cover the escalating mortgage payments. Moreover, delays in possession orders are compounding these challenges, while a notable proportion of motivated sellers entering the market are landlords who have found themselves at a tipping point.
It is imperative to acknowledge the wide-ranging implications of these developments for both landlords and tenants alike."
We seem to be getting articles of late that simply state the obvious !! Not helpful 🤔
The fixed rate interest only monthly payments on our HMO has just ended & been increased from £470 to £1700 a month. Contrary to the malicious garbage spewed out by Shelter, Generation Rent & their Marxist comrades we will not be increasing the rents. We are remortgaging at £1100 a month & running the place at a loss for a year in the hope of better times to come. Having said that, with the likelihood of a future Lab/Lib/Green government we’re not holding our breath & the future for our tenants, who we care a lot about won’t be great if we’re forced to sell up. These are the real truths the blind deaf & dumb Lefties choose to ignore!
I agree with John, there are far too many mistakes in the article. Also these news is nothing new. It has been said by many contributors in the past few months. Also he is clearly basing landlords borrowing of 75% in 2009 and now. Most properties have gone up with value and The interim rents have gone up for most of the properties. At the end it is the tenants paying more rent. Some landlords have paid off or reduced their total exposure, especially during covid, when there was less
spending. It is tax load, paying for certificates and maintenance costs have gone up since covid. For us mortgage costs are not biggest costs, partly they were anticipated from spring of 2022. So I fixed most of our mortgages with very good rates, before they started to go up in August. Now the next one is due in over 12 months. I am expecting the base rate to fall by at least 1% by October 2024. Currently paying 1.79%. So in theory, I should be able to reduce a little bit of capital within a year, allowance for reduction is 10%. But I have to pay off our residential mortgage by end of summer, as no one will lend on that property, as we are not working. You plan your finances but then let property expenses crop up anytime, maybe appliances replacements, etc.
It's quite easy to get a retirement mortgage although they're not particularly competitive currently.
I will be paying off debt by selling one of my btl’s in 2024. That’s If, and it’s a big IF I can actually get the property back to sell it! Looks like another dire year ahead evicting good tenants simply to stay afloat. Down now from 16 btls to 7 and still selling in 2024.
Many elementary mathematical mistakes in the above article.
I have five BTLs in London, three with smallish mortgages: £43,400; £69,500 & £58,750.
All three have come up for rate switch. Two from 3 November from 2.19% to 5.53% (no fee) and one from 1 January from 2.49% to 5.29% (no fee).
Since buying the flats in 2012 I have known this day of higher rates was coming, so have used the 11 years of low rates to overpay and part redeem the mortgages. My debt has reduced from £625,000 to 171,650. In the same period the value of my five flats has increased from £910,000 to £1,600,000 and equity from £285,000 to over £1,400,000.
I really cannot complain. BTL has been a very good investment for me- even if my tenants had been living there for free!
John Chart weighs in:
Tom Crispin makes a good point. I gloat as follows: In 1980 I bought a terraced cottage with a regulated tenant for £4,300 - yes £4,300 . Within 20 years it became vacant. and I renovated it at a cost of £30,000. It has been let on ASTs ever since. A few years ago I sold the rear section of the very long garden for £10,000. The house yields £1,280 gross pcm and is valued at £330,000.
The timeline may be fortuitous, but long term holding here has proven to be a sound strategy.
I don’t think the real money has ever been in rental yield. It is asset appreciation over time that really makes BTL work especially down south.
Correct. As long as rental income covers mortgage interest and other costs landlords are onto a winner with increasing property values. If you can repay part of any loan from rental income that’s a bonus.
No one mentioning costs of Regulation, Compliance and licensing, huge costs and on going yearly and so time consuming and a major obstacle to housing. I can’t count acid appreciation without count the fall in the value of money.
1980 you could fish & chips for £1.40, now £11.00. A pint of beer 50p now £4 / £5. A tradesman £15. / £20 pd but now £15 / £20 ph. How much was SDLT or Council tax back then and we weren’t discriminated against or double charged or Criminalised either.
You have to compare like with like and operational costs.
In 1952 the average house price was £1,891. If house prices had tracked inflation the average price would now be £63,300.
I think it is safe to say that house prices have outstripped the ballooning cost of cod and chips.
And while we now have to shell out £60 per year for a gas safety certificate, consider the poor fishmonger who is no longer allowed to wrap your haddock in Saturday’s read newspaper, instead having to buy plain white paper.
You won’t get a legitimate gas Cert in London for £60. I always have to pay more than double that unless I can get a few organised together. Of Course you’ll be aware we are required to have annual service as well that’ll be £100. on its own as soon as the cover comes off cleaning and hovering starts you’ll be paying. The inter linked fire alarm & emergency lighting Certs are another £200. annually have you got those, fire risk assessment £150. with Cert fo Flat or £220. for house.
DEICR every 5 years £350. without any remedial work. I am assuming you have modern Consumer units already as hopefully you have or inherited the fire Alarms and emergency lighting so didn’t have to pay for installation, same goes for fire doors etc huge expense and not a one off either I have had them damage and even one disappeared completely, then they expect fire and emergency lighting units to be replaced in 10 years to get Cert’ if you are buying a flat in London £300k to £500k and think the income is going to cover you think again, maybe different in other parts of the Country buying for £80k and not targeted and plagued with Regulation’s. Oh buy the way the HMO License Application fee is anything from £1100. for Additional or up to £1650 for Mandatory Application license fee in London. All those costs are additional to paying for your mere buy 2 let loan, which I didn’t have I had Commercial variable loans base + 3% usually 8%, then always had to pay tax on the repayment. Spare a thought some had an easy ride, no wonder we got hit with a sledgehammer.
All five gas safety certificates for £300 inc VAT is what I pay, plus a free service for our home boiler.
Anyway, you accept my point do you. House price inflation has wildly outstripped both the consumer price index and the retail price index, and along with chippies we are not the only ones to face increased regulation.
Of Course I don’t accept the Standard of the 1952 house is the same as the 2023 house. Probably have been gutted and re-modelled a number of times,
Otherwise it would just be a shell if still standing, devoid of amenities and not worth very much anyway, so we can’t just add annual inflation cost to original price and not the inflated costs of the components and labour used over the years which has has sky rocketed. Anyway we are on a hiding to nothing now with Gove’s Confiscation Bill, incidentally never know of a free boiler service unless paying for a break contract or extended warranty. Tom have a great Christmas and New Year.
Yes Gove is determined to destroy the Small Private Landlord.
Jacob Reece Mogg covered the Renters Reform Bill in his Pod Cast on GB News. He explained to the Panel why is was a Bad Policy for both Landlords and Tenants.
He explained how Landlords needed to be sure of Getting there Property Back , Or would not invest How It would Reduce the number of Properties to Rent hence force up rents. All Basic Stuff.
How did the panellist React . Thats Right all in favour of RRB .
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