Landlords unworried by rise in interest rates

Landlords are increasingly optimistic about the prospects for buy-to-let.

A new ‘landlord sentiment’ survey by LSL Property Services, parent company to Reeds Rains, Your Move and the former Halifax agency offices, says that nearly half (49%) of landlords think it is a good time to invest in more property.

The landlords are also unworried by the prospect of rising interest rates, saying that they would need to rise 3.25% on an average buy-to-let tracker mortgage to exceed current rental income.

Nearly seven in ten landlords (68%) expect rental demand to grow in the next year.

However, 54% are finding mortgage finance harder than a year ago and cite it as their biggest obstacle.

Of those landlords who have bought in the last year, 48% were cash purchasers.

With 185,600 fewer first-time buyers entering the sales market in the last 12 months than in normal years, over half of landlords have seen a rise in tenant demand in just the last three months.

David Newnes, estate agency managing director for LSL, said: “Optimism among landlords is not only buoyant, but increasing. Soaring rents and climbing demand from frustrated first-time buyers are not only making buy-to-let an attractive proposition for new property investors – but are encouraging existing landlords to grow their holdings before property prices increase once more.”  
 
The latest LSL Buy-to-Let Index showed that rents now equal their all-time high of £692 per month.

As a result, landlords with mortgage finance have an average of £274 in rental income a month after mortgage payments – or £3,288 per year.

This means that even if interest rates increase by 3.25%, landlords’ current rental income would be big enough to absorb the increase in the cost of a tracker mortgage on the average buy-to-let property.

Newnes said: “Landlords are taking a healthy sum once the mortgage has been paid each month. Many are taking the opportunity to either pay down their mortgage or expand their portfolio – or are using the opportunity to build slush funds for rainy days or future higher mortgage costs.

“With the Bank Rate forecast to remain below 2% until at least the end of next year, landlords can expect to see rental payments rise without facing the burden of higher mortgage payments.”