By New research has shown that the nation’s tenants could be facing a sharp increase in the cost of renting over the course of the year, as landlords face little choice but to increase rental values in the face of soaring buy-to-let mortgage costs.
Researchers analysed the average monthly cost of a buy-to-let mortgage back in December 2021 as interest rates started to climb, based on a two year fixed product at a rate of 2.9% on the average house price of £268,115 at the time.
The research shows that back in December 2021, the average cost of a buy-to-let investment would have seen landlords paying £942 per month as a full repayment, or £486 per month as an interest only payment.
Fast forward to today and the same mortgage on the current average house price of £289,818 would require a full monthly repayment of £1,133, or a monthly interest only payment of £703.
That’s a 20.1% increase in the average monthly cost of a full monthly repayment, equating to £190 more per month, or a 44.6% increase in the average monthly interest only repayment adding £217 more to the monthly cost.
However, further analysis shows that, so far, tenants have yet to be hit with a rental increase in line with the higher cost of buy-to-let borrowing.
Since December 2021, the average monthly cost of renting across the UK market has increased by just £124 per month to £1,184.
Even in London, where rents have increased by £227 per month since interest rates began to increase, the average cost of a repaying a buy-to-let mortgage has increased by a greater margin; by £297 per month for a full mortgage repayment, or £372 per month for an interest only repayment.
However, those who would have secured a more favourable rate prior to the first interest hike in December 2021 will be approaching the end of their fixed term this year, meaning tenants could be facing higher rents, with landlords left with little other choice to cover the higher cost of borrowing.
James Forrester, Managing Director of Barrows and Forrester, the estate and lettings agent responsible for the research, commented:
“As it stands, the nation’s landlords are yet to hand down the far higher cost of borrowing to their tenants and while rents have climbed of late, they haven’t increased at the same rate as the monthly cost of a mortgage.
This is partly due to the fact that many landlords will have secured a favourable rate on a fixed product before interest rates started to climb.
But those that managed to do so are likely to be approaching the end of their fixed term this year and will be hit with far higher rates when they do.
Many landlords opt to pay an interest only payment to service their loan while benefiting from the rental income and the capital appreciation of their portfolio.
So whether they are entering the market now, or looking to lock in a new rate for a fixed period, their monthly cost is going to have increased considerably.
Unfortunately for the nation’s tenants, they are left with little choice but to recoup this higher cost via an increase in rents and so we expect to see sharp upward growth in the average cost of renting as the year progresses.”
| Table shows the change in the average monthly cost of renting and repaying a B2L mortgage between December 2021 and Jan 2023 | |||
| Location | Rental Value Change | Change in B2L Mortgage Repayment (Full Monthly) | Change in B2L Mortgage Repayment (Interest Only) |
| London | £227 | £297 | £372 |
| South East | £128 | £265 | £300 |
| South West | £117 | £221 | £249 |
| North West | £112 | £145 | £163 |
| Scotland | £112 | £100 | £128 |
| East of England | £107 | £235 | £268 |
| West Midlands region | £90 | £190 | £203 |
| East Midlands | £72 | £179 | £196 |
| Northern Ireland | £71 | £125 | £137 |
| Wales | £70 | £139 | £161 |
| Yorkshire and the Humber | £67 | £136 | £155 |
| North East | £59 | £123 | £130 |
| England | £109 | £207 | £234 |
| United Kingdom | £124 | £190 | £217 |
| Table shows the change in the average cost of renting between December 2021 and Jan 2023 | ||||
| Location | Ave rent pm – Dec 2021 | Ave rent pm – latest Mar 2023 | Change £ | Change % |
| London | £1,752 | £1,979 | £227 | 13.0% |
| South East | £1,123 | £1,251 | £128 | 11.4% |
| South West | £983 | £1,100 | £117 | 11.9% |
| North West | £844 | £956 | £112 | 13.3% |
| Scotland | £738 | £850 | £112 | 15.2% |
| East of England | £1,031 | £1,138 | £107 | 10.4% |
| West Midlands region | £786 | £876 | £90 | 11.5% |
| East Midlands | £742 | £814 | £72 | 9.7% |
| Northern Ireland | £724 | £795 | £71 | 9.8% |
| Wales | £736 | £806 | £70 | 9.5% |
| Yorkshire and the Humber | £737 | £804 | £67 | 9.1% |
| North East | £580 | £639 | £59 | 10.2% |
| England | £953 | £1,062 | £109 | 11.4% |
| United Kingdom | £1,060 | £1,184 | £124 | 11.7% |
- Average cost of renting sourced from HomeLet
- Average property prices sourced from the Gov – UK House Price Index
- Average Buy to Let mortgage rates sourced from WhatMortgage
- Average Buy to Let mortgage deposit of 25% sourced from Money.co.uk
- Mortgage cost examples based on a two year fixed mortgage at a 75% loan to value over a 25 year term. Rate used for December 2021 figure was 2.9% versus a rate of 3.88% in the current market
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