Tenants across the UK could be in for a sharp increase in rental costs this year, according to analysis by Barrows and Forrester.
The findings indicate that landlords, facing rising buy-to-let mortgage costs, may have little choice but to raise rents to cover the increased expenses.
Barrows and Forrester analysed the average monthly cost of a buy-to-let mortgage in December 2021, when interest rates began to climb. It based its calculations on a two-year fixed product at a rate of 2.9% on the average house price of £268,115 at that time.
The research highlights that in December 2021, landlords would have paid an average of £942 per month as a full repayment or £486 per month as an interest-only payment for a buy-to-let investment. However, as of today, the same mortgage on the current average house price of £289,818 would require a full monthly repayment of £1,133 or a monthly interest-only payment of £703.
This translates to a significant increase in the average monthly cost of a full repayment, amounting to a 20.1% rise, or £190 more per month. For interest-only payments, the increase is even more substantial, at 44.6%, or £217 more per month.
Despite the higher costs faced by landlords, Barrows and Forrester’s analysis indicates that tenants have yet to experience a corresponding increase in rental prices. Since December 2021, the average monthly cost of renting across the UK has only risen by £124 per month, reaching £1,184.
Even in London, where rents have gone up by £227 per month since interest rates began to rise, the average cost of repaying a buy-to-let mortgage has increased by a higher margin, reaching £297 per month for a full repayment or £372 per month for an interest-only repayment.
However, tenants who secured more favourable mortgage rates before the first interest rate hike in December 2021 may now be approaching the end of their fixed term. This could potentially result in higher rents, as landlords face limited options to offset the increased borrowing costs. As a result, tenants across the nation could face the prospect of paying higher rents in the coming months.
James Forrester, managing director of Barrows and Forrester, commented: “Many landlords opt to pay an interest only payment to service their loan while benefiting from the rental income and the capital appreciation of their portfolio. So whether they are entering the market now, or looking to lock in a new rate for a fixed period, their monthly cost is going to have increased considerably.
“Unfortunately for the nation’s tenants, they are left with little choice but to recoup this higher cost via an increase in rents and so we expect to see sharp upward growth in the average cost of renting as the year progresses.”
