Property lending specialists Octane Capital have unveiled a concerning scenario for buy-to-let (BTL) landlords, revealing that an overwhelming 78% of BTL portfolios in England and Wales are funded through mortgage borrowing. As the spectre of rising interest rates looms, this reliance on loans places these landlords on precarious ground, particularly in certain regions.
Regional Disparities Exposed
Octane Capital’s research indicates that the East Midlands tops the list as the most mortgage-reliant region, with a staggering 97% of investment properties held under mortgage. Following closely are the West Midlands and Wales, where 89% and 83% of investment properties, respectively, rely on borrowed funds.
Landlords Facing the Storm of Mortgage Costs
Jonathan Samuels, the CEO of Octane Capital, commented on the challenging situation: “The rising cost of mortgages has been a challenging storm for landlords to weather, and considering their reliance on mortgage finance, it’s easy to see why.” Samuels warns that landlords, especially in the East and West Midlands, will have no alternative but to increase rents to offset the escalating interest rates, potentially causing financial strain for tenants.
Samuels further emphasized, “Investors in Yorkshire and the Humber are least affected, with a third of investment properties being owned outright, so some landlords should be shielded from the tougher market conditions.”
Vulnerability in the East and West Midlands and Wales
Octane Capital’s research underscores that landlords in the East and West Midlands and Wales face the greatest vulnerability, struggling to sustain profitable investments in the face of rising interest rates. Consequently, the private rented sector (PRS) may experience an exodus of landlords as they consider selling their properties.
Resilience in Yorkshire and the Humber
Conversely, Yorkshire and the Humber demonstrate a higher degree of resilience, with only 67% of properties held with loans, minimizing the impact of rising rates on investors in this region. Similarly, the South West and the North West display relatively lower ratios of mortgaged properties, at 67% and 70% respectively.
Bank of England’s Monetary Policy
These findings come at a critical juncture when the Bank of England is contemplating further interest rate hikes to combat inflation. Despite holding rates at 5.25% following its last monetary committee meeting, the prospect of future rate increases threatens to significantly impact buy-to-let landlords, making borrowing more expensive and potentially flooding the market with BTL properties for sale, potentially affecting the overall housing market in the UK.