As well as causing a slump in property sales, the increasing cost of mortgages is having serious knock-on effects in the buy-to-let market, where owners are now faced with higher borrowing costs eating into their profit margins. The situation has worsened over the last few weeks as mortgage lenders have withdrawn and repriced many of their cheapest deals, meaning that the average two-year fixed-rate deal jumped by almost 0.5% to 6.02% and the average five-year deal to 6.04%.
This means that on a £250,000 interest-only loan a two-year fixed-rate deal which would have initially required monthly repayments of £617 (at a rate of 2.96%) will now cost £1,254 per month (at the increasing cost of mortgages is having serious knock-on effects in the buy-to-let market, where owners are now faced with higher borrowing costs eating into their profit margins.. Landlords may have benefitted from ten years of cheap mortgages and low interest rates, but suddenly many are faced with disappearing profits and at the same time as having to fund higher repair costs.
The phasing out of tax relief on mortgage interest payments has also hit buy-to-let owners. Instead of tax relief landlords now receive a tax credit at the 20% basic rate, meaning that higher rate tax payers are now worse off. They may now be issued with a tax demand even if their property made no profit during the tax year after deductions for repairs.
Not only are landlords faced with increasing tax and maintenance bills, but many smaller scale owners who went into the buy-to-let market as a way to boost to their pensions are faced with a falling standard of living without the income from their properties. In the NRLA quarterly report for the 4th quarter of 2022 the National Residential Landlords Association (NRLA) claims that landlord confidence in the market continues to fall despite high tenant demand, with confidence levels now as low as those seen at the peak of the covid-19 pandemic. The NRLA says a record 20% of their members had sold one or more of their properties in the previous 12 months.
With all these financial issues facing buy-to-let owners a further blow could be on the horizon. The Renters (Reform) Bill is currently going through Parliament and is likely to result in more protection for tenants by introducing stricter rules concerning eviction notices. In the Royal Institute of Chartered Surveyors’ UK Residential Market Survey , published in May 2023, senior economist Tarrant Parsons summed up the difficulties faced by buy-to-let owners: “Interest rate rises are also impacting the rental sector and combined with looming reforms proposed in the government’s Renters (Reform) Bill, landlords are increasingly deciding to leave the sector and sell up property, causing further constraints to lettings supply.”
Bretherton Law have been serving the people of Hertfordshire for over 50 years. Our team of experienced Property Lawyers will ensure that whether you are buying or selling, the conveyancing process will run smoothly and professionally. We offer a same day response promise as well as fixed fee quotes. Bretherton Law are accredited under the Lexcel legal practice and the Law Society’s Conveyancing Quality Schemes. Contact us on 01727 869293 or use the contact form on this page.
