Tears and tantrums for landlords and tenants as the buy-to-let boom explodes

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The Bank of England warned earlier this week that higher interest rates would hit the buy-to-let sector in particular, as around 85% of these mortgages are interest-only.

It added that owners of mortgaged properties would need to increase rents by about 20 percent to offset the higher costs. This comes after a year of record prices, which have pushed many renters’ budgets to the brink of what they can afford.

“We’re dealing with a lot of owners and many of them are quite nervous right now,” says Riz Malik, Principal of R3 Mortgages. “Some have already started liquidating some of their investments and putting them on the market,” he says.

“In theory, we should have known this would happen, but we’ve been sitting in a low interest rate environment since 2008,” Malik says.

“The market or anyone hasn’t really thought about it that far and that’s why we’re saddled with this problem, which I think is going to turn out to be a very big problem.”

Lenders typically look for a ratio of rental income to interest payments of 125 percent for properties that are bought to let. Ratings agency Moody’s estimates that more than a quarter of mortgage rents could fall below a threshold of less than 110% by the end of 2024, meaning they are effectively loss-making.

“Historically, increasing rents has generally been associated with increasing profits, whereas we are now sitting in a somewhat different economic landscape,” says Matthew Roone, director of The Buy to Let Broker.

“Rents across the UK have increased by around 3 per cent and in some areas by as much as 16 per cent over the past 12 months. In some circumstances, landlord financing costs have increased by 100 per cent over the same period.”

Figures from Rightmove show asking prices rose 11% across the UK to an all-time high average of £1,162 when excluding London in the year to July to September. In the capital, prices have grown by a record 16 percent.

This pressure has been driven by demand far outstripping supply, with many landlords already moving out of the sector before prices began to rise as tenants returned post-pandemic.

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