A new study by one of our lenders, Octane Capital revealed that buy to let rates are outstripping rental growth. 

The study revealed that, across the entire United Kingdom, mortgage interest rates have surged by 13 percent year-over-year, surpassing the rental price growth of 9.9 percent.

It was noted that this trend is narrowing the disparity between mortgage and rental expenses, as the average monthly mortgage payment has now reached £982, compared to £1,068 for rents.

Jonathan Samuels, the CEO of Octane Capital, offered his insights, stating, “While landlords are frequently criticised for increasing rental rates, in numerous instances, buy-to-let mortgage expenses are increasing at a swifter pace than the costs of new leases. This year has unquestionably presented challenges for both landlords and tenants, as neither group has been immune to escalating expenses.

Regional Discrepancies

The research also unveiled geographical disparities, with mortgages surging at a rate more than double that of Yorkshire and the Humber and the North East. This suggests that landlords in these areas are feeling the most financial pressure.

In Yorkshire, mortgage payments witnessed a substantial 15.2 percent year-on-year increase, reaching £712. Simultaneously, rents increased by 7.4 percent over the same period, reaching £826, resulting in a narrowing gap between the two.

Similarly, in the Northeast, mortgage rates saw a 15.4 percent increase, averaging at £547 per month. This contrasted with a 7.6 percent rise in rental prices, which brought them to £636 per month.

Defying the Trend

Nevertheless, the study also pointed out that London stands as an exception, with rental rates in the region rising by 12.9 percent year-on-year, surpassing the 11.4 percent increase in mortgage payments. Consequently, tenants in London now pay £2,109 per month for new leases, a figure significantly exceeding the average mortgage repayment of £1,789.

In contrast, in Scotland, where the government’s rent control policy applies to existing tenancies, it appears to be having the opposite effect on new leases. The research suggested that Scottish tenancies are annually 15.8 percent more expensive, reaching £973, representing a larger percentage increase than any other region in Great Britain. This is in comparison to mortgage expenses of £643 per month in the northern part of the country, following a 12.4 percent year-on-year increase.

Octane Capital specified that although it is accurate to say that mortgage expenses are rising more rapidly than rental payments, it’s essential to recognise that rising mortgage costs are starting from a lower baseline than rents. The research conducted a comparison between rent increases and the average Buy-to-Let mortgage payments based on the average price for a new lease and the cost of a Buy-to-Let mortgage with a 40 percent down payment.

Fox Davidsons View

2023 has been a tough year for landlords, with rising interest rates it has been hard to make the maths work when financing an investment property with a mortgage, especially at the higher loan to values of 75% or 80%. 

We have continued to see many landlords move to an HMO model which provides a much higher yield. 

Interest rates should be near their peak now and we have already seen lenders repricing downwards over the last few weeks. The worse may be behind us. We are still of the opinion that we will see inflation fall away quickly into 2024 which in turn will allow for interest rates to come down and provide the housing market with some much-needed relief. 

To discuss buy to let mortgages on residential and commercial property do get in touch. Email [email protected] or call us on 01179 89 79 50.