Data shows that landlords pay an additional £5.5bn per year to their banks due to a rise in mortgage rates.
Hamptons analysis shows that buy-to-let landlords are collectively paying £15bn in mortgage interest per year, which is a 58pc increase since November 2021, when the Bank of England started raising interest rates.
The mortgage interest payment of landlords has increased by 40% in the last year, meaning that they have paid an additional £4.3bn.
In contrast, the falling interest rates between the years 2015 and 2021 resulted in a 3pc reduction of the landlord’s mortgage interest bill, even though they had taken on more debt during that period.
The rising interest rates are rapidly reducing the margins of buy-to let properties. Mortgaged landlords’ debt repayments accounted for 37pc in August, compared to 28pc the year before. This calculation does NOT include their maintenance and tax costs.
Investors who have been refinanced at higher rates due to expiration of fixed-rate deals, which were cheaper in the past, are more likely to be affected.
Moneyfacts reports that the average rate for a buy-to let mortgage with a fixed rate of two years was 6.24pc on Friday. This is more than twice as high as the 2.92pc average rate from October 2021.
Aneisha B. Beveridge is the head of Hamptons’ research. She said that even if the Bank of England does not raise rates again, the amount of interest on mortgages paid by landlords could exceed £20bn in the next two-year period.
This could eat just over half of the rent received by mortgaged landlords. This will make it unaffordable for some investors and they may decide to pull out of the market, maintaining upward pressure on rental prices.
In August, the average rate of buy-to let mortgages was 3.4pc. The total annual interest cost for landlords will reach £17.9bn if this rate reaches 4pc. The total interest bill will reach £26.8bn at 6pc.
Despite massive rent increases, landlord profits are declining. In September, the average cost of a newly rented property increased by 11.7% year-on-year.
The growth rate of 12pc in August was the fastest ever recorded.
The average rent for a newly rented home in Britain has increased to £1,325 a month, up from £1,186 per month in September 2022.
The fastest-rising rents are in London where the growth rate reached 15.7pc. Rents are up £322 per month compared to the previous year.
Rents in outer London have increased by 16.2pc. This means that the average rent is higher here than it was two years ago.