The recent Financial Stability Report from the Bank of England reveals a forecast of significant monthly cost increase, amounting to approximately £275, on buy-to-let mortgages by the conclusion of 2025.
Landlords are facing a challenging landscape as a result of multiple factors, including increased interest rates and regulatory modifications. These adjustments encompass income and capital gains tax regulations, proposed modifications to building energy efficiency standards, and enhanced tenancy protection measures.
The interest coverage ratio (ICR) is a metric that gauges the ability of rental income to cover interest payments, reflecting how well landlords manage borrowing costs. Landlords with high debt-servicing expenses relative to rental income (low ICR) are more prone to repayment challenges.
Similar to mortgages for owner-occupiers, higher interest rates result in elevated mortgage servicing expenses when fixed-rate deals require refinancing. Since most buy-to-let (BtL) mortgages follow an interest-only structure, the impact of higher rates becomes relatively more significant. By the end of 2025, an estimated average increase of approximately £275 per month is projected for BtL mortgage repayments.
In response, Ben Beadle, the chief executive of the National Residential Landlords Association, highlights the challenging predicament faced by responsible landlords due to escalating mortgage expenses.
He emphasizes that they find themselves in an impossible situation, having to choose between exiting the market at a time when demand for rental housing exceeds supply, raising rents, or bearing increasingly burdensome costs that many cannot afford. While homeowners have received assistance through the Government’s Mortgage Charter, no support has been extended to the private rented sector.
Beadle emphasizes the urgency for ministers to intervene and safeguard the market from the repercussions of mounting costs. To aid renters, he calls for the swift unfreezing of housing benefit rates to ensure they can meet their rental payments. Additionally, he advocates for the removal of tax hikes on the sector to stimulate the supply of much-needed rental homes for tenants in need.
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