Speculation regarding an increase in interest rates next year is a concern for landlords with a buy-to-let mortgage. Despite this market being more buoyant than in recent years, property prices are increasing at a disproportional speed compared to rent values, reducing rental profits.
How a rate rise could affect UK landlords
A recent study took place analysing the average rent in ten key UK regions, comparing profits where mortgage interest rates are 3 percent, a typical rate now, and where they could be in the future, estimated at 5.5 percent.
The results showed that landlords may end up struggling to make a profit if interest rates rise, squeezing the already tight margins. Experts predict even modest rises could affect those landlords that have the common set up, an interest only mortgage at 75 percent the property value on a 3 percent interest rate.
Are you one of the UK’s two million landlords who are concerned about your future position?
If you are, you are not alone – many of our clients are contacting us with questions regarding their buy-to-let mortgage, especially following the recent Election, where policies are all changing.
Which areas will be most affected
The study showed that the most affected areas could be:
- North East
- East Midlands
- West Midlands
- Yorks & Humber
- South West
- South East
- Greater London
Greater London is likely to be the most affected. Broadly speaking, a 5.5 percent mortgage could be in the region of £2,000 a month. Matched with an average rent in the area of £1,200 (LSL Property Services) could leave landlords with a deficit to cover.