The landscape for the nation’s tenants is looking increasingly bleak as the prospect of a steep increase in rental costs looms large on the horizon. Landlords, faced with soaring buy-to-let mortgage costs, have little choice but to increase rental values, pushing the cost of renting to new heights.

Estate and lettings agent Barrows and Forrester conducted an analysis of the average monthly cost of a buy-to-let mortgage back in December 2021, as interest rates began to climb. Based on a 2-year fixed product at a rate of 2.9% on the average house price of £268,115 at the time, the research revealed that landlords would have had to pay £942 per month as a full repayment, or £486 per month as an interest-only payment.

However, fast forward to the present day, and the same mortgage on the current average house price of £289,818 would require a full monthly repayment of £1,133, or a monthly interest-only payment of £703. This amounts to a staggering 20.1% increase in the average monthly cost of a full monthly repayment, equivalent to an extra £190 per month. Meanwhile, an interest-only repayment has risen by 44.6%, adding £217 more to the monthly cost.

Despite this, tenants have yet to experience a corresponding increase in rental prices in line with the higher cost of buy-to-let borrowing. Since December 2021, the average monthly cost of renting across the UK market has increased by just £124 per month to £1,184. Even in London, where rents have risen by £227 per month since interest rates began to increase, the average cost of a repaying a buy-to-let mortgage has increased by a greater margin; by £297 per month for a full mortgage repayment, or £372 per month for an interest-only repayment.

Nevertheless, this situation is unlikely to persist for long. Those who secured a more favorable rate prior to the first interest hike in December 2021 will soon reach the end of their fixed term this year. Landlords, faced with higher borrowing costs, will be left with little choice but to pass on the additional expense to their tenants.

James Forrester, managing director of Barrows and Forrester, highlighted this trend, noting, “Many landlords opt to pay an interest-only payment to service their loan while benefiting from the rental income and the capital appreciation of their portfolio. So whether they are entering the market now, or looking to lock in a new rate for a fixed period, their monthly cost is going to have increased considerably. Unfortunately for the nation’s tenants, they are left with little choice but to recoup this higher cost via an increase in rents and so we expect to see sharp upward growth in the average cost of renting as the year progresses.”