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Landlord profits wiped out as buy-to-let rates double

·2-min read
Morgage Rates Profit Landlord Interest
Morgage Rates Profit Landlord Interest

Landlord profit margins are getting hammered as buy-to-let mortgage rates more than double, new data shows.

Investors purchasing in August will have to pay an extra £2,784 per year in mortgage interest than if they had bought in January as interest rate rises push up the cost of borrowing.

The average rate for a two-year fixed-rate 60pc mortgage has surged from 1.69pc to 3.43pc in the last eight months, according to Property Master, a buy-to-let mortgage broker.

This follows the Bank of England’s six consecutive increases in the Bank Rate from 0.1pc in December to 1.75pc this month.

A landlord taking out a typical £160,000 buy-to-let mortgage will now have a monthly bill of £494 – £232 more than if they had purchased at the start of the year. Over the course of a two-year fix, this will be an extra bill of £5,568.

The rate for the same mortgage with a five-year fixed-rate deal has also surged from 1.94pc to 3.5pc over the same time period. This means a typical landlord will pay £481 per month, an extra £208 compared to if they had purchased in January. Over the five-year period, they will pay an extra £12,480.

Further interest rate rises are in the pipeline, with market forecasters expecting the Bank Rate will hit 3pc next year. This will bring more jumps in mortgage rates.

Angus Stewart, of Property Master, said: “The cost of buy-to-let mortgages continues to rise inexorably.”

Alongside the Bank Rate rises, landlords also face higher costs because some lenders are using higher rates to manage demand, Mr Stewart said. “Others are taking the opportunity to widen their margins.”

The jump in costs mean smaller, part-time or accidental landlords will be shut out of the market, Mr Stewart warned.

“For many of the smaller players in this market, unaffordable rises in mortgage costs will undoubtedly lead them to conclude buy-to-let no longer works for them,” he said.

Rising interest rates will hit landlords’ profit margins particularly hard because investors can no longer offset all of their mortgage interest payments against their tax bill — since April 2020, they only get a 20pc tax credit.

Surging costs will both deter investors from buying and push others to sell up, as they come to the end of their fixed-rate deals and have to remortgage at much higher rates.

Property Master tracks 30 lenders, who together constitute around 75pc of total buy-to-let mortgage lending.