Landlord mortgage costs set to soar in next 18 months

Landlord monthly mortgage costs and payments will increase by around £275 by the end of 2025, the Bank of England has forecast.

The Bank said:

“Landlords are currently subject to a combination of factors that are putting pressure on their profitability: higher interest rates and structural changes – including adjustments to income and capital gains tax rules and proposed changes to building energy efficiency regulations and tenancy protection.

“The interest coverage ratio (ICR), which is a measure of rental income relative to interest payments, shows the extent to which a landlord’s rental income covers their cost of borrowing.

“A landlord with high debt-servicing costs relative to their rental income (i.e. a low ICR) is more likely to experience repayment difficulties.

“As with owner occupier mortgages, higher interest rates mean an increase in mortgage servicing costs when fixed rate deals need to be refinanced, and most BtL mortgages are interest only, which increases the relative impact of higher rates.”

The Bank went on to say that if landlords were to entirely absorb higher mortgage costs (ie without passing any of them on to renters), the share of buy-to-let mortgages with ICRs below 125% would increase significantly from around 3% at the end of 2022 to just over 40% by the end of 2025.

Ben Beadle, chief executive of the National Residential Landlords Association, responded to the news:

“Growing mortgage costs are putting responsible landlords in an impossible position.

“Either they leave the market at a time when demand for rented housing is already outstripping supply, increase rents, or soak up growing costs which many simply cannot afford.

“Whilst help has been provided for homeowners in the form of the Government’s Mortgage Charter, nothing has been done to support the private rented sector.

“It is vital that ministers step in to protect the market from the impact of growing costs.

“For renters, housing benefit rates need to be unfrozen without delay to ensure they can cover their rent payments.

“Alongside this, tax hikes on the sector need to be scrapped to boost the supply of homes to rent that tenants desperately need.”

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