Buy-to-let mortgage costs outpacing rents

New analysis reveals that landlords are seeing their mortgage payments rise at a faster rate than rents, signalling that some investors aren’t passing on all their rising costs to tenants.

Related topics:  Finance,  Landlords,  Mortgages,  Rent
Property | Reporter
12th October 2023
To Let 733
"While landlords are often blamed for ramping up rents, in many cases buy-to-let mortgage costs are rising faster than the cost of new tenancies"
- Jonathan Samuels - Octane Capital

This is based on research from specialist property lending experts, Octane Capital, which compared how rents have increased over the past year versus the average cost of buy-to-let mortgage payments, based on the average price for a new tenancy and the cost of a buy-t0-let mortgage with a 40% deposit.

Across Great Britain as a whole mortgage rates have risen by 13.0% year-on-year, outstripping rental price growth of 9.9%.

This is closing the gap between mortgage and rental payments, as mortgage costs now average at £982 per month, compared to £1,1068 for rents.

Where landlords are swallowing mortgage costs

Mortgages have risen at more than double the rate of rents in Yorkshire and the Humber and the North East, signalling that landlords are feeling the pinch the most in those regions.

In Yorkshire, mortgage payments have surged by 15.2% year-on-year to £712. Over the same period, rents have risen by 7.4% to £826 - so the gap is closing between the two.

Similarly in the North East mortgage rates have increased by 15.4% to average at £547 per month. This compares to a rental price increase of 7.6%, bringing it to £636 per month.

London and Scotland - where it’s toughest to be a tenant

London doesn’t tally with the general trend, as rents have increased by 12.9% year-on-year, exceeding an 11.4% increase in mortgage payments.

As a result, the capital’s tenants have to fork out £2,109 per month for a new tenancy, which far exceeds the average mortgage repayment costs of £1,789.

In Scotland, the government’s policy of controlling rents on existing tenancies appears to be having the opposite effect on new tenancies, which are 15.8% more expensive annually at £973 per month, a bigger percentage increase than any other region in Great Britain.

This compares to mortgage costs of just £643 per month north of the border, after rising by 12.4% year-on-year.

While it’s true to say that mortgage costs are rising at a faster rate than rental payments, it’s important to note that rising mortgage costs are coming from a lower base than rents.

CEO of Octane Capital, Jonathan Samuels, commented: “While landlords are often blamed for ramping up rents, in many cases buy-to-let mortgage costs are rising faster than the cost of new tenancies.

“This is particularly the case in Yorkshire and the Humber and the East Midlands, where the markets clearly don’t allow landlords to recover all their higher outgoings in the form of rents.

“This year has undoubtedly been a tough one for landlords and renters - as neither has been able to escape rising costs.”

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