There’s a new warning this morning that rents are set to soar as landlords struggle with much higher interest rate payments when their fixed rate deals finish.

The Intermediary Mortgage Lenders Association says private landlords have for years been faced with a growing burden of regulatory and tax changes, which have increased their operating costs.  

And while until recently these additional costs have been offset by falling mortgage rates, the current sharp rises in buy to let mortgage rates risk making large numbers of private landlords’ business models uneconomic.  

IMLA says a finance firm has calculated that landlords needing new mortgage deals as old fixed rate offers have ended have, on average, seen the cost of their monthly interest payments jump by 75.7 per cent over the last year. 

The association warns: “While the majority of landlords remain on low fixed-rate loans for now, their interest rate payments will rise over the coming months as they reach the end of their current fixed deals. This will place additional and unwelcome upward pressure on rents – which have not kept pace with inflation over recent months.”

It says that between 2013 and mid-2022, estimated net yields for landlords exceeded buy to let mortgage rates. This meant landlords could achieve positive gearing, increasing their return on the equity they put into the property by increasing their debt.  

But IMLA notes: “Today, however, two-year fixed-rate mortgage rates are above average net yields, producing negative gearin. The relatively sudden increase in funding costs is causing a significant proportion of buy to let landlords to fail affordability assessments when seeking to refinance loans.  

“Some may seek to exit the market altogether, while others may be obliged to sell some properties and re-balance the debt on their portfolios.”

IMLA executive director Kate Davies comments:“The private rental sector serves some some 4.6m households – the equivalent of 11m people – and represents approximately 19 per cent of the housing market. Maintaining the health of the sector is therefore essential if we are to manage the UK’s chronic housing shortage. 

“Our report highlights the tough environment that landlords currently find themselves in and, more concerningly, the outlook for the PRS and tenants if policymakers’ approach to the sector doesn’t change.

“Demand for rented housing is clearly high, and measures to increase tenant protections are important. However, the focus now needs to be on prompting increased investment in the sector and supporting landlords, whose operating costs risk  becoming unaffordable. If we don’t get the balance right, the result will be higher rents, and lower availability of properties – both of which are bad news for tenants and landlords.”