“The latter are likely to stay in the market, certainly for the time being although every buy-to-let has a tipping point,” Stewart said.
He added: “The risk to those exiting the market now is obvious, the lifeboats are filling up fast and the band have stopped playing.”
Jiten Varsani, a mortgage adviser at London Money said for investors with big deposits, the sector is still profitable but it is the higher leveraged landlord’s who are seeing the biggest challenges.
“Particularly where rental income is not proportionately achievable,” Varsani explained.
Varsani provided two examples of recent remortgages, both by landlords in North West London.
In both cases the interest rate has shot up by more than 3 per cent.
Landlord 1:
Loan: £279,125
LTV: 47.08 per cent
Basis: Interest Only
Current Payment: £360.03 per month (pm) (Fixed-rate: 1.55 per cent)
New Payment: £1,102.54pm (Fixed-rate: 4.74 per cent)
Rental Income: £2,300pm
Landlord 2:
Loan: £568,191
LTV: 61.7 per cent
Basis: Interest Only
Current Payment: £946.22pm (2.0 per cent)
New Payment: £2,423.10pm (5.1 per cent)
Rental Income: £2,600pm
“Taking into account agent fees, accounting fees, repairs, rental voids, personal income etc., there will need to be some serious consideration given to whether or not these will be feasible going forward,” Varsani said.
Things can only get..worse?
Looking ahead, many more buy-to-let landlords are about to face a crunch this year, which in turn will pile the pressure on their tenants.
According to data from UK Finance, there are currently 2mn buy-to-let mortgages outstanding across the UK with around 1.3mn of these on fixed rates.
Of these, around 230,000 fixed deals are due to expire between March 2023 and March 2024 meaning that many renters are exposed to potentially significant rental hikes in the coming year.
Some brokers have noted a shift away from longer-term property letting to short-term holiday lets in response to the constrained profit margins.
We have definitely seen a decrease in new buy-to-let enquiries for both remortgage and new purchase. However, interestingly we have seen an increase in holiday let and Airbnb enquiries in recent months,” Louis Mason, communications manager for brokerage Oportfolio told FTAdviser.
Mason said this is likely due to the increase in income that can be achieved by letting properties out on a daily or weekly basis compared to long-term lets and noted the difficulties traditional buy-to-let investors are currently facing.
“The increase in people wanting to holiday in the UK rather than abroad to save money during the economic crisis is undoubtedly a reason why Airbnb and holiday let are becoming more prominent,” Mason said.
“We have had a client recently who was looking to remortgage one of his buy-to-let properties. He had previously come to us earlier in the year and we assessed his maximum loan at £300,000 with TMW.
