Buy-to-let mortgage costs climb by as much as 64% in a decade as landlords face mounting pressure from rental reform

The latest research from London lettings and estate agent, Benham and Reeves, has revealed that the average monthly cost of a buy-to-let mortgage has climbed by as much as 64% over the last decade, as landlords continue to face mounting financial pressure alongside sweeping reforms introduced via the Renters' Rights Act.

Benham and Reeves analysed the change in buy-to-let mortgage costs over the last 10 years based on the average UK house price, assuming a 25% deposit and a 25-year mortgage term, comparing both full repayment and interest-only repayment structures using the average mortgage rate available a decade ago versus today.

The research shows that the average UK house price has increased from £191,298 a decade ago to £267,957 today, a rise of 40.1%.

As a result, the average buy-to-let landlord now requires a mortgage loan of £200,968 after placing a 25% deposit of £66,989, compared to a loan requirement of £143,474 a decade ago.

At the same time, the average buy-to-let mortgage rate has increased from 3.19% to 3.73%.

Combined, these factors have caused the average monthly cost of a full repayment buy-to-let mortgage to climb from £695 per month to £1,031, an increase of 48.4% or £336 per month.

However, the sharpest increase has been seen amongst landlords using interest-only mortgages, which remain a popular option across the buy-to-let sector due to lower monthly repayment costs and stronger rental yield potential.

Over the last decade, the average monthly cost of an interest-only buy-to-let mortgage has climbed from £381 per month to £625 per month, an increase of 63.8%, equivalent to an additional £243 every month.

Over the course of a standard two-year fixed mortgage term, this means landlords are now paying an estimated £5,839 more in mortgage costs compared to a decade ago.

Marc von Grundherr, Director of Benham and Reeves, commented:

"The buy-to-let sector has faced a relentless stream of challenges over the last decade and landlords are now contending with substantially higher mortgage costs at the same time as sweeping legislative reform via the Renters' Rights Act.

"While house prices have increased considerably over the last 10 years, higher borrowing costs have further intensified the financial burden facing landlords and this has been particularly notable for those utilising interest-only mortgages, which have traditionally formed a large part of the buy-to-let market.

"Many landlords have already absorbed significant increases in operational costs in recent years, from taxation changes and licensing requirements through to energy efficiency regulations and wider compliance obligations.

"Despite this, the sector continues to demonstrate resilience because rental demand remains extremely strong and, in many parts of the country, vastly outweighs the level of available stock.

"Of course, there is a tipping point and continued upward pressure on costs will inevitably influence investment decisions across the sector. However, well-positioned landlords with quality stock continue to perform strongly, particularly within markets where tenant demand remains robust."