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

• Landlords warning finances are on brink of crisis
• Surging buy-to-let mortgage rates wiping out profits 
• Lenders have withdrawn more than 275 buy-to-let deals and hiked interest rates 

Landlords are warning that their finances are on the brink of crisis as surging buy-to-let mortgage rates wipe out profits and force growing numbers to sell at discounts of up to 25 per cent.

Lenders have withdrawn more than 275 buy-to-let deals and hiked interest rates by up to 1.57 per cent in just two weeks.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

A landlord remortgaging now with a typical buy-to-let portfolio would see their costs more than double overnight – rising by around £1,394 a month.

The average two-year fixed rate mortgage is now 6.1 per cent, up from 5.56 per cent at the beginning of last month and 2.96 per cent two years ago, according to rates scrutineer Moneyfacts. Landlords owe around £533,000 in buy-to-let borrowing on average, typically in interest-only mortgages.

Rising costs mean that profits are quickly evaporating – and some landlords are now plunging 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 analysis from estate agent Hamptons. The latest hike in mortgage rates will see average profits fall overnight from £4,490 to £1,780 for a basic-rate taxpayer. Higher-rate taxpayers would see profits almost evaporate, leaving them with just £120 a year after mortgage payments, maintenance costs and tax. Interest rates over six per cent will plunge them into the red, according to the firm.

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

Two years ago, landlords’ profits were hit as tax relief on their rental income was completely phased out. Last year, tougher rules were introduced for rental properties where there are multiple tenancies.

And earlier this year, plans were confirmed to ban no-fault evictions, as well as 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, increasing taxation, increasing legislation and an economic downturn.’

Paul Shamplina, founder of Landlord Action, adds: ‘In the 32 years I’ve been working for landlords, I’ve never known their confidence to be as low as it is now.’

Why landlords are selling in their droves

David Coughlin, who runs Landlord Sales Agency, which helps landlords to sell out of the market, says that he has seen some sell their portfolios at 75 per cent of their value just to get rid of them as they are no longer financially viable now rates are rising.

‘They’re willing to do a deal just to get properties sold, says David, 53, who is based in Chester. ‘They’re more worried about getting the property sold quickly than they are about price.

‘It’s a real problem especially if you need to sell with tenants still in the property – we’re seeing landlords accept offers around ten to 15 per cent under what they could get through an agency.’ David says that half of the properties he helps landlords to sell go to other landlords who are less worried about mortgage costs. The other half are usually sold to first-time buyers. ‘Increasingly it’s companies buying up portfolios of buy-to-lets and some think that now is the time to buy.’

The rises that spell pain for tenants

Rising mortgage rates are quickly translating into higher rents for tenants. Landlords are trying to pass on their increased costs, while a falling number of buy-to-let properties means tenants are competing for a smaller pool of options.

The average rent on new rentals rose by 9.1 per cent in May compared to the previous year, according to lettings agency Hamptons. Average monthly rent hit £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 let a two-bedroom flat in North London and says renters were fighting over it. ‘It was genuinely shocking,’ he says. ‘There were more than 50 tenants wanting to take it and offering crazy high rents to get it. I really feel for them but at the same time, there are landlords who can’t even cover the mortgage it’s got so bad.’

Some tenants have seen their rent raised multiple times over the past year. The rising cost of living means hundreds of thousands cannot absorb further rent rises and so landlords will struggle to pass on extra costs to them. Chris Norris, at the National Residential Landlords Association, adds: ‘In the first quarter of the year, one in three private landlords in England and Wales said they planned to cut the number of properties they rent out.

‘It’s at the highest level we have ever seen, leaving many more renters struggling to find a place to live. We need a thriving rental market to meet the needs of ever-growing numbers of people.’

Wave of remortgaging is going to hurt

Jonathan Samuels, 45, a landlord with ten buy-to-let properties, says a huge wave of landlords are going to have to remortgage this summer and many could struggle.

That’s because thousands of additional buy-to-let properties were bought 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 per cent loan-to-value mortgage was 1.8 per cent,’ says Jonathan, who is based in West London and is chief executive of specialist lender Octane Capital.

‘Many landlords who bought before the stamp duty holiday will be coming off these deals and remortgaging on to new ones at over six per cent.’

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

‘If you’ve plenty of equity, higher rents mean it’s relatively straightforward to remortgage,’ he says.

Professional landlord and company director Bert Habib says that many landlords he speaks to are trying to get out of the market because there are too many rules and regulations for them to keep up with.

Bert, who is based in North London and owns 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 in early, it’s been a really good investment – especially because mortgage rates have been so low until recently.

‘It’s much harder for newer landlords though, as there are very few opportunities to buy where the yield is worth it.’