We’re facing four horsemen of the Buy To Let Apocalypse

Landlords are warning that their finances are on the brink of crisis as rising mortgage rates wipe out profits and force more and more people to sell at discounts of up to 25 percent.

Lenders have withdrawn more than 275 buy-to-let deals in just two weeks and raised interest rates by up to 1.57 percent. NatWest, Santander, BM Solutions, Fleet, Mpower and Lendco were among a tsunami of companies that last week withdrew buy-to-let mortgages and repriced them at higher rates.

A landlord now taking out a new mortgage with a typical buy-to-let portfolio would more than double their costs overnight – at around £1,394 per month.

The average two-year fixed-term mortgage rate is now 6.1 percent, compared to 5.56 percent at the start of last month and 2.96 percent two years ago, according to rate monitor Moneyfacts. Landlords owe an average of around £533,000 in buy-to-let loans, mostly in interest-only mortgages.

Rising costs are causing profits to evaporate quickly – and some landlords are now diving into the red.

The average buy-to-let property in England and Wales currently generates around £12,000 a year in rental income, according to an analysis by estate agent Hamptons. The latest rise in mortgage rates will cause the average overnight profit to fall from £4,490 to £1,780 for a basic rate taxpayer. Higher taxpayers would see profits all but evaporate, leaving them with just £120 a year after mortgage payments, maintenance costs and taxes. Interest rates above six percent will plunge them into the red, according to the company.

Rising costs could be the last straw for hundreds of thousands of landlords, who have faced a series of blows to their businesses in recent years (see timeline below).

Two years ago, landlords’ profits were hit by the complete abolition of tax deductions on their rental income. Last year, stricter rules were introduced for rental properties with multiple rental contracts.

And earlier this year, plans were confirmed to ban no-fault evictions and introduce strict new rules for improving the energy efficiency of rental properties. Vanessa Warwick, landlord and co-founder of Property Tribes, says the current situation is like “facing the four horsemen of the buy-to-let apocalypse.” She says, “These are rising mortgage rates, rising taxes, increasing legislation and economic downturn.”

Paul Shamplina, founder of Landlord Action, adds: ‘In my 32 years of working for landlords, I’ve never seen their trust as low as it is now.’

Why landlords sell en masse

David Coughlin, who runs Landlord Sales Agency, which helps landlords sell out of the market, says he’s seen some sell their portfolios for 75 percent of their value just to get rid of them because they’re now no longer financially viable . are rising.

“They’re willing to make a deal just to get property sold,” says David, 53, who lives in Chester. “They are more concerned about the quick sale of the property than about the price.

“It’s a real problem, especially if you have to sell with tenants still in the property – we see landlords accepting offers that are about 10 to 15 percent lower than what they could get through a real estate agency.” David says half of the properties he helps landlords sell go to other landlords who are less concerned about mortgage payments. The other half is usually sold to starters. “Increasingly, companies are buying up portfolios of buy-to-lets and some think now is the time to buy.”

The increases that hurt tenants

Rising mortgage rates quickly translate into higher rents for tenants. Landlords are trying to pass on their increased costs, while a declining number of buy-to-let properties is leading tenants to compete for a smaller pool of options.

The average rent of new rental homes rose by 9.1 percent in May compared to a year earlier, according to rental company Hamptons. The average monthly rent was £2,500 in London and a record high of £1,190 for the rest of the UK, according to property portal Rightmove.

Bert Habib, 54, a landlord and investor, recently rented out a two-bedroom apartment in north London and says tenants fought over it. “It was really shocking,” he says. ‘There were more than 50 tenants who wanted to buy it and offered bizarrely high rents for it. I really feel sorry for them, but at the same time there are landlords who can’t even cover the mortgage, it’s so bad.’

Some tenants have seen their rent rise several times over the past year. With the rising cost of living, hundreds of thousands are unable to absorb further rent increases and so landlords will struggle to pass on extra costs to them. Chris Norris, from the National Residential Landlords Association, added: ‘In the first quarter of the year, one in three private landlords in England and Wales said they planned to reduce the number of properties they let.

“It’s at the highest level we’ve ever seen, which means a lot more tenants are struggling to find a place to live.” We need a thriving rental market to meet the needs of an ever-growing number of people.”

Wave of new mortgages is going to hurt

Jonathan Samuels, 45, a landlord with 10 rental units, says a huge wave of landlords will have to re-mortgage this summer and many will struggle.

That’s because thousands of additional buy-to-rent properties have been purchased to beat the stamp duty holiday, which was introduced during the pandemic and ended in August 2021.

“In August 2021, the average rate on a 75% mortgage on the value of the loan was 1.8%,” said Jonathan, who lives in west London and is CEO of specialist lender Octane Capital.

“Many landlords who bought before the stamp duty holiday will walk away from these deals and take out a new mortgage for more than six percent.”

However, Jonathan remains in the market and believes that the current climate presents a good buying opportunity for landlords with a good amount of equity.

“If you have enough equity, higher rents mean it’s relatively easy to re-mortgage,” he says.

Professional landlord and business executive Bert Habib says many landlords he speaks to are trying to get out of the market because there are too many rules and regulations to keep up with.

Bert, based in North London and owner of around 30 buy-to-lets in both London and Birmingham, says: ‘I’ve been in this market for 25 years and for those of us who bought early it was a really good investment – especially since mortgage interest rates were so low until recently.

“It’s much more difficult for newer landlords, however, because there are very few opportunities to buy where the return is worth it.”