Tough times ahead for buy to let landlords

Although landlords have been ruling the housing market since they are taking advantage of the low cost of buy to let mortgage rates and quickly buying up available properties, the tide of good fortune may soon change for them.

This is due to the fact that the average mortgage cost for any property is starting to increase and soon this will affect them as their terms come to a close and renewal terms and SVRs no longer look addition, rents are starting to fall after a steady rise over the last two years which is also going to affect their potential profits.

In February the Wales and England average monthly rent came in at £707; which is about a 1.6% drop compared to the peak of rents in October of 2011 according to a report from LSL Property Services. At the same time, as the eurozone crisis continues to increase the cost of borrowing, the larger banking institutes have been announcing sharp increases in their buy to let mortgage rates.

In the past months some of the larger banks such as the Leeds BS and Santander have both increased their rates and many more are expected to follow in the coming months. Leeds increased other products outside of their buy to let mortgages as well impacting the mortgage market in general.  For instance, Leeds BS choose to increase their fixed mortgages up to 4.35% versus the previous offer of 3.99%.

This increased the monthly mortgage payment on an average £150,000 mortgage up to £544 which is a large difference for a family or landlord that is used to paying the original mortgage rate of £499 per month.  However, landlords may still be able to come out on top compared to home owners.

This is due to the fact that rents are still expected to stay reasonably high and house prices are expected to continue to drop. Therefore, most people will likely continue to rent instead of buy which is a good market for landlords.

n addition, many analysts believe that the rent dip was just a temporary result of tenants purchasing first time homes before the stamp duty holiday came to a close in March and that the rents will go back up now that the stamp duty is back in place. At the very least, rents are still about 3.5% higher than they were in February of 2012 which helps keep the outlook positive for landlords.