The United Kingdom’s lettings market is facing more challenges as landlords grapple with a surge in mortgage payments, which could lead to increased hardships for tenants. According to a report by broker Hamptons International, landlords paid 40% more mortgage interest in August compared to the same month last year, totaling an additional £4.3 billion ($5.3 billion). On average, mortgaged landlords now allocate 37% of their rental income to pay interest, a significant increase from the previous year’s 28%.
Aneisha Beveridge, head of research at Hamptons, commented that these rising costs may become unaffordable for some investors, leading them to exit the market. This, in turn, could further drive up rental prices. The United Kingdom is already facing various economic pressures, including a sharp rise in interest rates and the worst cost-of-living crisis in a generation.
Tenants are bearing the brunt of the turmoil as landlords, who often rely on interest-only mortgages, are particularly vulnerable to rate hikes. To cope with the additional costs and stricter regulations, landlords may choose to sell their properties or increase rents. This situation has come as a surprise to many landlords who experienced a decline in borrowing costs between 2015 and 2021, resulting in a 3% decrease in their total mortgage interest bill, despite a 43% increase in mortgage debt during that period.
The burden on landlords is expected to persist as more of them transition from fixed-rate loans agreed upon when interest rates were lower. If the average mortgage rate on outstanding landlord debt were to reach 6%, the total collective annual mortgage interest payment of £15 billion would surge to nearly £27 billion, according to Hamptons’ analysis. Moneyfacts Group Plc reported that the average new two-year fixed-rate deal was over 6.4% last week.
However, Hamptons offered a glimmer of hope for tenants, stating that the rate of rental growth slightly slowed down month-on-month in September. Nonetheless, Southern England and Scotland witnessed a continued acceleration in rental prices from an already high level. In September alone, rents in the United Kingdom rose approximately 12% on an annual basis, making it the second fastest increase on record. London experienced the most significant surge, with the average monthly cost of letting a property being 16% higher compared to the previous year.
Even if the Bank of England does not implement any further rate hikes, Hamptons’ Beveridge warned that the total amount of mortgage interest paid by landlords could surpass £20 billion over the next two years. This could potentially consume over half of the rent received by mortgaged landlords. The implications of these developments on the lettings market remain a concern for both landlords and tenants across the United Kingdom.
More detail via The Star here… ( Image via The Star )