Landlords face mortgage crunch as cost of living crisis caps rents

Rents have started to fall in the South East as the cost-of-living crisis puts a cap on record price rises.

Landlords grappling with soaring mortgage costs face a looming blow as early signs show the rental price boom is ending.

The average rent on a property in the South East fell by 1.7pc year-on-year in September. It is the first sign that there is a ceiling on how much landlords can charge even when demand is sky-high, according to Hamptons estate agents.

Monthly rent on newly-let properties in the South East was £1,237 – £15 less than a year ago. Rents also fell by 0.7pc in Wales, where the average monthly rent dipped to £752.

The ceiling on rent growth will be a major problem for landlords, many of whom will see their properties become loss-making as they come to the end of their fixed-rate deal and mortgage rates rise.

Nationally, rent growth across England and Wales slowed to 6.9pc, down from a record high of 11.5pc in May.

Aneisha Beveridge, of Hamptons, warned that landlords face a huge affordability crunch as mortgage rates soar, leaving them scrambling to find tens of thousands of pounds in cash to keep their properties mortgageable.

“A landlord who bought an average home two years ago with a 25pc deposit would need to increase their equity from 25pc to 55pc if they remortgaged today in order to maintain the same monthly returns compared to when they first bought,” Ms Beveridge said.

For the average investor, this means finding an extra £67,000 in cash.

If the rent on a property cannot cover its outgoings, it will become unmortgageable. This is because lenders calculate affordability for buy-to-lets based on the interest coverage ratio (the ratio of rent to mortgage interest).

Landlords who are unable to raise their rents will have to cut their loan sizes or sell up. They may face a further hurdle finding a buyer, as new buy-to-let investors will face the same mortgage stress tests.

The pace of rental growth slowed in every part of England and Wales except for Greater London. Here, the rate remained steady at 11.3pc, and the Midlands, where the rate climbed from 9pc to 10pc.