Recent research conducted for the National Residential Landlords Association (NRLA) suggests that the majority of private landlords are bracing for an increase in mortgage payments in the coming year, which is expected to result in higher rents. This trend follows the Bank of England’s decision to maintain the base interest rate at a 15-year high of 5.25%.
The research reveals that while over a quarter of landlords plan to re-mortgage within the next year, 60% are preparing for higher mortgage repayments. Data from Hamptons shows that landlord investors in the UK are now paying £15bn in mortgage interest annually, a significant 40% increase from the previous year.
The buy-to-let market is particularly sensitive to these rising interest rates, with 82% of mortgages in this sector being interest-only, in contrast to just 11% for owner-occupier mortgages. Consequently, the Bank of England warns of probable near-term rent increases due to elevated mortgage costs and strong demand.
Despite the prospect of higher rents, a study by Savills indicates that landlords’ profits are at their lowest since 2007, suggesting that the rent increases are more about coping with escalating costs than profiteering.
The NRLA is urging the government to reconsider recent tax increases in the rental sector, arguing that these have reduced the supply of rental homes and contributed to the rise in rents.
Ben Beadle, chief executive of the NRLA, said: “Higher interest rates put continued pressure on renters, as landlords are simply unable to afford growing mortgage costs.
“Ministers need to accept that tax hikes on the sector have also played a major role in the affordability challenges we now see across the rental market.
“It’s time to reverse course and develop pro-growth tax measures. Without them, it is renters who will continue to struggle as demand outstrips supply and rents go up.”
Research by Capital Economics for the NRLA suggests that removing the 3% stamp duty levy on additional home purchases could result in almost 900,000 new private rented homes across the UK over the next decade. This change could potentially lead to a £10 bn increase in Treasury revenue over the same period, through higher income and corporation tax receipts.
