Landlords utilizing interest-only mortgages face a staggering 283% surge in monthly interest costs compared to 2021, while those adhering to full monthly repayments witness a substantial 71% increase. This concerning trend emerges from a recent analysis conducted by Octane Capital, delving into the evolving landscape of buy-to-let mortgages.
The study, scrutinizing the October 2023 rates for a 75% Loan-to-Value (LTV) two-year fixed rate buy-to-let mortgage, highlights a stark trajectory shift in rates over the past decade. Notably, it underscores the contrast between repayment structures and their pronounced impact on expenses for property investors.
Octane Capital’s research unveils a marked decline in the average buy-to-let mortgage rates, attributed to historically low base rates prevailing since 2009. From a high of 5.06% in October 2012, rates plummeted to a mere 1.65% in October 2021 before the onset of escalating interest rates in December 2021.
The consequence of this shift reflects in the considerable surge in average monthly mortgage payments for landlords. Pre-2021, those opting for full monthly repayments faced an average expense of £804, while interest-only payments reduced this burden to just £272.
However, the scenario underwent a drastic change post-2021. By October 2023, buy-to-let mortgage rates catapulted from an average of 1.65% to 5.72%, coupled with an increase in property prices from £363,333 to £291,385 during this period, exacerbating the financial strain on new investors.
Presently, the average monthly repayment for landlords stands at £1,371, marking a 71% surge from October 2021. Meanwhile, those choosing interest-only payments witness an alarming 284% escalation, reaching £1,042 monthly.
Jonathan Samuels, CEO of Octane Capital, remarks on the challenging landscape faced by landlords, emphasizing how soaring mortgage repayments have substantially eroded profit margins. He cites a series of government regulatory changes as an additional strain on landlords’ profitability.
“Landlords, especially those opting for interest-only payments, grapple with a significant upsurge in mortgage costs, fostering skepticism about the sector’s future profitability,” states Samuels.
Nevertheless, amidst these challenges, there appears to be a glimmer of hope for mortgage holders. Samuels notes a recent downtrend in the cost of two-year fixed rates, slightly decreasing from 5.87% to 5.72% between October 2022 and October 2023.
Concluding on a cautiously optimistic note, Samuels anticipates a potential continuation of this downward trend in buy-to-let rates, buoyed by the Bank of England’s maintenance of the base rate since August, potentially carrying over as the market progresses into 2024.