Mortgage costs are on the rise, and up to 225,000 landlords could face financial losses

Analysis shows that 225,000 landlords could lose money on their rental property when they refinance, as mortgage rates are climbing towards 7pc.

Moneyfacts reports that the average rate for a two-year buy to let mortgage reached 6.69pc last Friday. Five-year deals are priced at 6.52pc.

Analysis for The Telegraph shows that at current rates 226,930 of the UK’s buy-to-let properties – or 11pc all mortgaged rental homes – are unprofitable.

The traders are betting that the Bank of England is going to raise its base rate by a quarter-century high of 6.25pc early next year. This will likely force lenders to increase their mortgage costs further.

Aneisha B. Beveridge is the head of Hamptons’ research. She said, “We know that almost 70 % of landlords own a house with a mortgage.” This is a higher percentage than the owner-occupied population. “Landlords are at greater risk than average households from the new higher-rate environment.”

If the higher-rate tax payer had kept the same rent, they would have lost every month of £227 if he or she bought and rented a property that cost £190,000.

Even if the rent was raised in line with market rates, someone in the same situation with a 75pc loan-to value ratio would still make a loss of £119 per month.

Ms Beveridge stated: “The most vulnerable landlords are those who have taken out equity from their properties or bought a new buy-to-let in the last two years.” These are those who have sold their buy-to let properties or taken out equity in them within the past two years.

Renters are likely to suffer more hardship as landlords raise their rents and/or try to sell some of their properties.

Separate numbers from SpareRoom revealed that the proportion of renters to rooms advertised in the first half of 2023 reached its highest level for at least eight months.

In this period, 12pc more people looked for a home than they did a year ago.

Experts are concerned that the rising mortgage rates may lead to a decrease in new landlords entering the market, which will increase the pressure on the supply.

Ms Beveridge stated: “Any new investor is going to have to consider pumping in more money and making larger deposits than before.”

They just won’t pass the stress test on these types of 75pc mortgages. This is especially true in low-yielding areas like London and the Southeast.

Legal & General Mortgage Club figures show that in June 2023 the percentage of loans that were made to landlords dropped to 11pc, from 15pc a few months earlier.

Ms Beveridge stated that the number of landlords who leave the rental sector will “undoubtedly” be greater than those who enter it this year. Since 2016, the supply of rental properties has decreased.

She said that The cooling of house prices has forced some people to absorb losses.

Ms Beveridge stated: “We haven’t seen as much acceleration in the sale of landlords as we had expected, given that rates have increased over the last six to eight months.”

Kevin Roberts, of Legal & General, said that many property investors who were selling in London are now looking at other parts of the nation with lower prices to find new opportunities.

They are shifting their portfolios where the yields are. You can still get better returns in the Northwest, the North of England or elsewhere in the UK. “Our tools are still heavily used to search for Airbnbs and holiday homes,” said he.

Some landlords are believed to have retired due to the Government’s plans to ban no fault evictions .

SpareRoom, a buy-to let investor survey conducted by SpareRoom in May, found that 34 of respondents planned to reduce their portfolios or sell them.