Oct

Mortgage rate rises major threat to London landlord profitability, says Moody’s

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More than a third of landlords (38%) with fixed-rate mortgages due to end between now and the end of 2024 will end up with loss-making properties if rates rise four percentage points higher than their current deals.

According to credit ratings agency Moody’s, as interest rates rise, these investors face taking a big hit because their interest coverage ratios (ICR) – the ratio of the gross rental income to mortgage payments – will fall below 110%. Two-thirds of landlords on fixed-rate mortgages will come to the end of their deals in the next two years.

Half of the nation’s worst-performing investment properties are in the capital where landlords would have to raise rents by 37% to keep them solvent.

Loss-making

More than a fifth (22%) of the buy-to-let properties at risk of becoming loss-making are in the Southeast where landlords will need to hike rents by 28% to make their properties mortgageable and profitable, while across the rest of the UK, rents would need to be raised by 24%.

Moody’s analyst Alexis Rivet (pictured) told The Telegraph that London will be home to the largest share of landlords falling below the 110% ICR benchmark because rental growth in the capital has lagged behind the rest of the country during the pandemic. Rents on newly-let properties in London are soaring at a record rate, but the measure that matters for landlords is the average rent across all rental properties.

“Those landlords whose ICR falls below 110% have three options,” says Rivet. “They can increase the rent, they can reduce the amount they can borrow, or they can sell the property.”

However, many would struggle to make such sizeable rent increases during the cost-of-living crisis while tenants are being hit by energy price rises and a record drop in real earnings.

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