Historically being a buy-to-let landlord has always been a lucrative game to be in. If you find yourself in the fortunate position to be able to either purchase a property for purely rental purposes, or own a property that you are able to turn into a rental home, then being a landlord can earn you a nice profit. In the past purchasing a buy-to-let property, as long as you have the money to invest in it, was a fairly straight forward thing to do. As long as the expected rent received is enough to satisfy the lender’s requirements then all is well. And remortgaging a buy-to-let property was even more simple. However, recent changes in the economy and buy-to-let mortgage rates have got landlords asking “Should I increase rent?”.
How Are Buy-To-Let Mortgages Typically Calculated
When getting a buy-to-let mortgage, lenders will look for three things generally. Firstly income. Most lenders will need you to have some form of income if you are either remortgaging a buy-to-let property or purchasing a new one. Most lenders will need your income to be a minimum of £25,000 a year. However, there are a few lenders who do not have a minimum income requirement.
The second thing they look for is the amount of deposit you can contribute to the property purchase (i.e. buy-to-let deposit amount) or how much equity you have in your property if you are looking to remortgage. Most buy-to-let lenders will lend up to a maximum of 80% LTV or a minimum of 20% deposit/equity. A lot of lender will however require a larger minimum deposit, sometimes 25% or 30% and of course, the larger deposit you have, the more competitive the products generally are.
Thirdly, the lender will look at how much rental income your property receives currently, if it is already let out and you are doing a buy-to-let remortgage. Or how much expected rental income you will get, based on similar properties and the local area that the property is in, if you are looking to buy a buy-to-let. Different lenders have different ways of assessing rental income for mortgage affordability purposes but a lot either say that your rental income received needs to cover 125% or 145% of your mortgage payments, as a buffer for them and also so that you are making a profit off the property.
For example, your mortgage could hypothetically be £700 a month. For you to make a profit, you could easily charge £800 a month however a mortgage lender would insist that you charge at least £900 so that there is a couple of hundred pounds buffer in case anything goes wrong with your finances and you can’t afford to pay your mortgage.
Is Getting A Buy-To-Let Mortgage More Difficult Now?
Remortgaging a buy-to-let property or purchasing a new one has certainly gotten more tricky to do in recent months as mortgage rates have increased, the cost of living has gone up, and lenders have tightened their mortgage affordability. As mortgage rates have gone up, this means that a lot of landlords with existing rental properties are leaving low interest rates of 2 or 3% and going onto rates of 4, 5 & 6% meaning that their monthly mortgage payments are increasing. This has naturally led to a lot of landlords pondering the decision to increase rent.
When it comes to getting a new buy-to-let mortgage or doing a buy-to-let remortgage, many landlords will find themselves having to increase their asking rent to cover the 125% or 145% monthly payment buffer that the lenders insist on. So if we use the example above, someone who once paid £700 a month for their btl mortgage could easily see their payments go up to over £900 a month. That means that they could need to raise their rent to over £1,100 a month.
I think it is fair to say that most landlords with loyal and respectful tenants would rather not have to increase their rent and price out their renter, but that is the dilemma that many people are facing in 2023. According to a study by financial study website Landbay, 68% of UK landlords are considering increasing their rent when their next remortgage comes around.
Should I Increase Rent?
If you are a landlord looking to remortgage a buy-to-let property in 2023, the first thing you should be doing is speaking to a mortgage advisor. At Oportfolio Mortgages, we are buy-to-let mortgage specialist brokers, meaning buy-to-lets are our bread and butter. We know everything there is to know about btl mortgages, where the markets are at the moment, and what you need to do to make sure your properties are still profitable and you don’t lose your tenants because of rental increases. So give us a call for a free initial discussion and assessment today.
Unfortunately, the bad news is that no mortgage owners, buy-to-let or not, can avoid mortgage rate increases. At least for the time being, rates are higher than they have been for a few years and are not likely to drop back to the levels they were pre-2022 for a long time. However, rates are coming down, so don’t worry. Every day lenders are reducing their rates, not just on residential mortgages but on buy-to-lets too. That means that even if the current available rates on buy-to-let mortgages are high, in a few months time they could easily be 0.50% lower or more.
Another factor to take into account is the increasing number of landlords and tenants that are finding themselves struggling financially due to the cost of living crisis. Most people have been affected in some way or another by the cost of living crisis, and for landlords who rely on rental income as their main source of income, a rental increase may be something that is necessary to keep afloat. As financial advisors, we can carefully look at your finances with you and help you to re-structure finances and rental requirements so that you are receiving enough income to be comfortable.
Are Rental Increases Inevitable In 2023?
Are rental increases inevitable remortgaging in 2023? If you are already charging the minimum amount required to meet lender’s btl affordability, then changes are that you will more than likely need to increase your rent when you next remortgage. As mortgage advisors, our job is to follow the mortgage market and be aware of any and all rate changes. So, if you are coming off a rate of 3.25% for example, and we as mortgage advisors can find you the most competitive and lowest interest rate available on the market. Meaning that you as a landlord won’t be too much out of pocket per month, can still make a profit from your investment property, and most importantly you won’t have to increase your tenant’s rent by too much per month.
If you are on the other side of buy-to-let mortgage affordability where your property is in a high rental yield area, a buy-to-let property in London for example, you may already charge more for your property than the minimum amount required by the lender. This is great news for you as this means that if you get the help of a mortgage lender to stills secure you a low mortgage interest rate when you remortgage, your rent received will still more than likely cover the minimum required and your property will still be profitable.
My Buy-To-Let Mortgage Is Coming Up For Renewal In 2023
If your btl property needs a remortgage in 2023, we can help you to start planning for your new mortgage 6-months prior to your current deal ending. With buy-to-let mortgages it is extremely important for you to plan ahead to make sure that our investments is making you money and that you aren’t losing any money per month. As mortgage affordability changes come into effect and people start to switch to higher interest rates than they were previously on, now is a better time than ever to enlist the help of a specialist buy to let mortgage advisor. Call our team today to discuss your property and how we can help you get a great new btl mortgage deal.