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Buy to let 'unprofitable' in most areas if rate rises and tax relief falls

If interest rates rise by 2.5 per cent over the next four years, traditional buy to let could become unprofitable in seven out of 10 UK towns and cities according to new research. 

Property Partner looked at more than 100 of the largest towns and cities in the UK, to see what impact a hypothetical interest rate rises - coupled with the upcoming changes to mortgage interest tax relief - would have on local buy-to-let markets. The research takes as its end-point 2020, when buy to let investors will have lost higher rate tax relief on their mortgage interest payments.

The research took an average property, let out at a rent typical of the area in each of the towns and cities studied. It assumed the property was mortgaged with a 60 per cent LTV buy to let loan, fixed for three years at 3.0 per cent.

Taking the country as a whole, the average annual net profit would be £3,419 today but would fall to £2,555 by 2020, even if rates remained at 3.0 per cent. This profit drop would be down to the phasing out of mortgage interest tax relief. 

The figures are starker if interest rates were to rise 2.5 per cent by 2020 with the same average buy to let making a loss in more than two thirds of towns and cities, with an average loss of £325 per year.

In one case, Salisbury, buy to let landlords currently making an average annual profit of £2,200 would be in debt by £2,984 per year with the interest rate rise and mortgage tax relief change combined. 

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