"Landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters' Rights Act"
- Marc von Grundherr - Benham and Reeves.
The average monthly cost of a buy-to-let mortgage has risen by as much as 64% over the past decade, according to new research from London lettings and estate agency Benham and Reeves.
The findings land as landlords contend with both higher borrowing costs and sweeping legislative change through the Renters' Rights Act.
The research analysed buy-to-let mortgage costs over ten years based on the average UK house price, assuming a 25% deposit and a 25-year mortgage term. It compared full repayment and interest-only structures using the average mortgage rate available a decade ago against today's equivalent.
Rising prices, rising loans
The average UK house price has grown from £191,298 to £267,957, a rise of 40.1%. That growth has pushed the average mortgage loan requirement from £143,474 to £200,968, after accounting for a 25% deposit of £66,989.
Over the same period, the average buy-to-let mortgage rate has moved from 3.19% to 3.73%. Together, these factors have driven the average monthly cost of a full repayment mortgage from £695 to £1,031, an increase of 48.4%, or £336 per month.
Interest-only landlords feel the sharpest squeeze
The steepest rise has fallen on landlords using interest-only mortgages, a structure that remains popular across the buy-to-let sector because of lower monthly repayments and stronger rental yield potential.
Monthly costs on an interest-only basis have climbed from £381 to £625, up 63.8%, adding £243 to monthly outgoings. Across a standard two-year fixed term, that amounts to an estimated £5,839 in additional mortgage costs compared to a decade ago.
"The buy-to-let sector has faced a relentless stream of challenges over the last decade, and landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters' Rights Act," said Marc von Grundherr, director of Benham and Reeves.
"While house prices have increased considerably over the last 10 years, higher borrowing costs have further intensified the financial burden facing landlords, and this has been particularly notable for those utilising interest-only mortgages, which have traditionally formed a large part of the buy-to-let market.
"Many landlords have already absorbed significant increases in operational costs in recent years, from taxation changes and licensing requirements through to energy efficiency regulations and wider compliance obligations.
"Despite this, the sector continues to demonstrate resilience because rental demand remains extremely strong and, in many parts of the country, vastly outweighs the level of available stock.
"Of course, there is a tipping point, and continued upward pressure on costs will inevitably influence investment decisions across the sector. However, well-positioned landlords with quality stock continue to perform strongly, particularly within markets where tenant demand remains robust."
