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Soaring Mortgage Costs Erode Landlord Profits: Time to Look at Buy-to-Let Alternatives?

The soaring cost of buy-to-let mortgages is seriously threatening the profitability of traditional buy-to-let models, with some landlords even facing the prospect of being pushed into making losses.

New research by Hamptons found that the average mortgage rate on a typical 75% buy-to-let mortgage increased from 1.79% to 3.51% in the 12 months to August 2022, meaning those who bought or remortgaged an average £222,000 property would see their annual interest-only repayments almost double to £5,903 – a rise of £2,893 a year.

Time to Look at Buy-to-Let Alternatives?

Clearly, the soaring cost of borrowing is going to have a major impact on the profitability of traditional buy-to-let for landlords who have a mortgage. The company calculated that the net annual profit, assuming an average 6.1% yield and the payment of higher rate tax, would fall to just £212 at the new base rate, compared to almost £3,200 a year ago.

Now, there is the threat of more rate rises following the government’s controversial mini-budget and tax cuts announced in September, with the Bank of England hinting that it may need to deliver a “significant monetary policy response” to protect the falling value of the pound and respond to soaring inflation. 

With many banks pulling mortgage deals for new customers, some experts predict that an emergency rise may be on the horizon, further ramping up the cost of buy-to-let mortgages and leaving many landlords facing a potential loss making scenario.

Now is the Time to Consider Your Options

September’s latest base rate rise to 2.25% was the seventh consecutive increase, taking rates to their highest level in 14 years.

With the prospect of further hikes to come over the next few weeks and months, landlords with mortgages are rightly worried about the period ahead and may be considering different options.

While those on fixed rate deals may feel some level of immunity, trouble may lie ahead once the fixed rate comes to an end. In addition, it may not be easy to secure a favourable new deal once it has finished, meaning those who are stretching themselves could land up in a tricky situation.

So, what’s the potential solution?

At this time, investors would be well advised to stay away from lenders as much as possible. There are many ways to invest in and profit from property without needing to own or mortgage an asset outright, including our innovative Avora Capital solution.

Indeed, indirect property investments can be an attractive option in terms of delivering a return on investment without needing to worry about the impact of rising monthly mortgage repayments.

For existing landlords, now could be a good time to consider your options and be prepared for the worst case scenario. If you then think you may have a problem and you only have a short time left, it may be worth changing now. Alternatively, it could be worth selling any investment properties in your portfolio that may cause you difficulty.

As experts in the property market, we’re happy to help and talk you through the different options available to investors. To speak with one of our experts, don’t hesitate to give us a call or reach out using our contact form.

Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.