The last week's interest rate hike was the eleventh such rise in the recent past affecting residential buyers and BTL investors. The significant rise in the cost of borrowing erodes profit margins for BTL investors, besides the government's restrictive policies and legislative changes. However, the BTL sector remains an attractive investment choice, with appropriate financing support and location.

The Rise In BTL Mortgage Rates

Continuous rise in the rates of BTL properties left landlords and BTL investors feeling the heat besides the government's mini-budget in September 2022. The housing market remained volatile because of several factors, such as the declining pound's value. The investors feared that the cost of borrowing would rise sharply. Recent market research by Octane Capital confirms that the monthly BTL mortgage interest rates rose by 75.% in 2022. The interest rates continued to climb higher than the monthly mortgage repayment rates, which witnessed a sharp growth of 31.6%.  

BTL Mortgages 

Even though residential mortgage rates have decreased slightly, BTL mortgage rates are still high. Regardless of the deposit amount, the average fixed mortgage rate for a two-year BTL fixed mortgage stands at 5.81% currently. The rate shows a downward trend from the previous month's 5.95%. Yet it is higher than 3.05%, two years ago.

An average BTL investor borrows £217,364 to cover the UK property's average cost of £289,819 after investing the 25% deposit. They will repay an average monthly instalment of £1,312 at an average BTL mortgage rate of 5.32% for BTL property. BTL investors and landlords are paying higher monthly repayments as the two and five-year fixed-mortgage rates hover above 5%.  

BTL Investors Feel The Squeeze

Several landlords are leaving the market by selling their properties, as they cannot pass the lender's affordability test. A few investors have no option than accepting variable rates of 9.5%. There are over 1,600 mortgage deals, including smaller deposit options that offer 80% Loan to Value. Most BTL investors struggle to benefit from a broad spectrum of mortgage deals.

 BTL investors and landlords must conduct in-depth research to find loan products with lower interest rates. One can get a 65% fixed BTL loan at a 3.99% interest rate for two years from a reputable lender. They also provide a loan at 3.98% for a 5-year fix with 75% loan-to-value. Comparison of deals should focus on overall mortgage costs rather than the interest rates. Lenders offering the best deals may charge hefty upfront fees as percentages to the mortgage value, costing thousands of pounds.  

Legislation Changes Add To Woes

Besides skyrocketing BTL mortgage rates, BTL landlords must deal with frequent legislation changes. The Renter' Reform Bill is about to ban no-fault evictions besides doubling notice periods for rent hikes. Landlords face a reduction in capital gains tax allowance from £12,300 to £6.000, slashing the profits from sales. The only ray of hope for BTL landlords is a steady growth in rental costs. During the last year, the average rent growth was approximately 8.3%. The rents grew across regions while the growth was around 11 in the Midlands and North England.

The Takeaway

Despite all roadblocks affecting the nation's landlords, there is a significant growth in the total amount of BTL loans. It shows landlords' determination to leverage the BTL properties as the right investment option by choosing lucrative BTL mortgage deals.

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