Buy to let mortgage costs climb 64% in 10 years

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Buy to let mortgage costs climb 64% in 10 years

Buy to let landlords are paying up to £5,839 more over a two-year mortgage term than they were a decade ago, research suggests.

And, tucked behind the headline figure, the sharper squeeze is being felt by those on interest-only loans, where monthly costs have climbed by nearly two-thirds.

The analysis by Benham and Reeves found that the average monthly cost of a full repayment BTL mortgage has risen from £695 to £1,031 over the past 10 years.

That is an increase of 48.4%, or £336 a month, based on the average house price, a 25% deposit and a 25-year mortgage term.

RRA impact

The firm’s director, Marc von Grundherr, said: “The buy to let sector has faced a relentless stream of challenges over the last decade and landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters’ Rights Act.

“While house prices have increased considerably over the last 10 years, higher borrowing costs have further intensified the financial burden facing landlords and this has been particularly notable for those utilising interest-only mortgages, which have traditionally formed a large part of the buy-to-let market.”

He added: “Many landlords have already absorbed significant increases in operational costs in recent years, from taxation changes and licensing requirements through to energy efficiency regulations and wider compliance obligations.

“Despite this, the sector continues to demonstrate resilience because rental demand remains extremely strong and, in many parts of the country, vastly outweighs the level of available stock.”

House prices rise

The lettings and estate agent say the average house price has risen from £191,298 to £267,957 over the same period, a 40.1% increase.

As a result, the typical landlord now needs a buy to let mortgage of £200,968 after putting down a 25% deposit of £66,989.

A decade ago, the comparable loan requirement was £143,474.

Borrowing rates have also moved higher, with the average buy to let mortgage rate rising from 3.19% to 3.73%.

Monthly BTL interest-only

The increase has been steeper for landlords using interest-only mortgages, which have long been used in the sector because they keep monthly costs lower.

The average monthly interest-only payment has risen from £381 to £625.

That is a 63.8% jump, adding £243 a month to the cost of borrowing.

Over a standard two-year fixed mortgage term, the firm estimates that landlords are now paying £5,839 more in mortgage costs than they would have done 10 years ago.

For assistance with any type of buy to let (BTL), property or commercial finance please complete the contact form below:

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