The cost of landlord borrowing is set to jump by 80% over the next two years as they refinance off historically low fixed rates – but despite this, most are planning to expand, according to the Intermediary Mortgage Lenders Association.   

Increases in annual interest payments for buy-to-let owners are expected to rise by £7,700 on average by 2025, says the lender body’s landlord survey.  

This comes against current median average annual rental income of £14,000 and annual profits of £9,000 per property.   

The report says: “Most landlords do not have significant resources to draw on outside their rental business.   

“On average, landlords’ non-rental income is roughly in line with tenant income, except in London where tenants earn substantially more.”  

It says the national median average non-rental annual income for landlords is £39,000, compared to £37,000 for private tenants.  

However, in London, the median average annual income for renters is £50,000.  

Imla executive director Kate Davies says: “Many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs.   

“Sadly, reality dictates that many mortgaged landlords will have no choice but to increase rents in order to keep their businesses viable, while debt-free landlords may well do the same in order to make an adequate return, even if that is lower than current returns available elsewhere.”  

Landlords saw the removal of their mortgage interest deductions begin in 2017, following former Chancellor George Osborne’s 2015 Budget.  

But the survey says that only 36% of BTL owners believed they were paying more tax as a result of the tax change, while Imla calculates that 58% will actually be paying more tax based on their supplied income information.  

It adds that 64% of property investors said increased regulation had hiked their costs, which rose to 73% of portfolio landlords.   

However, 53% of mortgaged landlords plan to buy more rental property over the next five years, as do 25% of unmortgaged investors. Only 21% and 17%, respectively, say they will sell property over this period.  

The study also found that 80% of landlords own one or two properties, making up 61% of private rented stock, while 13% are classed as portfolio landlords — owning four or more properties — accounting for 39%.   

It adds: “Despite a surge in the number of landlords setting up corporate structures since the removal of the tax deduction for interest rates in 2017, only 10% of all rented property is held in limited companies, with 90% still held in personal names.   

“Just 3% of the UK private rented sector is owned by institutional investors.”  

Imla’s Davies points out: “The private rented sector plays a vital role in the UK’s housing landscape, providing homes to 20% of households.  

“There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved.   

She adds: “Landlords’ tenacity is to be commended — it is a great relief that so many plan to stay in the sector and increase supply when they can.   

“Policymakers should beware adopting any policies which could upset what is already a delicate balance, and ensure they do nothing further to deter the small businesses which form the backbone of the private rented sector from continuing to invest.”  

Imla’s survey comprised a random sample of 503 UK landlords contacted in September.