With mortgage rates on the increase and house prices expected to fall by up to 5% in some areas, many landlords are weighing their property investments to see if they should remain in the market.

Like the rest of the mortgage market, buy-to-let rates have also been affected by the recent and continued interest rate rises by The Bank of England, who is attempting to control the rise in inflation and the cost of living by increasing the base rate.

The number of buy-to-let products available in the market has also steeply dropped to just over 988, compared to 1,942 before the mini-budget was announced by the former Chancellor Kwasi Kwarteng.

However, with the recent political changes in parliament, the markets have somewhat calmed down, and lenders are feeling more confident and upped their offering to just over 1,400 different mortgage products available for the buy-to-let market.

Like homeowner mortgages, buy-to-let mortgages' interest rates have increased, but have seen a much steeper rise with rates jumping from 2.94% in January 2022 to 6.67% now for a two-year fixed-rate mortgage.

The cost of a five-year fixed-rate mortgage has followed a similar pattern, rising from an average of 3.18% at the beginning of the year to 6.73% now.

The above would mean that a landlord borrowing £200,000 on a two-year fixed rate mortgage, would see their monthly payment jump from £490 in January to £1,127 now on a typical two-year interest-only mortgage.

Currently, tracker mortgages are offering a better value than a fixed rate mortgage, with two-year buy-to-let products averaging at 4.42%. However, this rate is not fixed and will fluctuate depending on The Bank of England’s decision to move increase or lower the Base Rate.

Economists are predicting that if the Base Rate was to increase to 5%, a buy-to-let tracker mortgage rate could rise to 7.17%.

The slightly good news is that since the appointment of the new Chancellor Jeremy Hunt, the market has regained confidence with mortgage rates seeing a slight fall. The overall market confidence has meant that the cost of government borrowing is continuing to drop, which in turn may reflect on mortgage rates. However, at the same time, The Bank of England has increased the Base Rate to 3%, but this is to bring inflation down from its current level of 10.1%.

With the new Chancellor and PM leading the country, economists and market analysts expect interest rates to rise further in an attempt to combat inflation, as the UK goes into a mini-recession, but they don’t expect the Base Rate to remain high for long.

Although interest rates are on the rise, rental rates continue to also rise with the average rent in the UK now being £1,051 per calendar month, and Leicester currently seeing an average rent of £1,079 per calendar month.

Rental rates were on the rise prior to The Bank of England’s first increase in the Base Rate and this is due to a combination of tax rises, increased regulation over the past few years and the significant mismatch between supply and demand in the sector.

With many landlords exiting the market since the tax changes were initially announced, this has meant that the private rental sector has seen fewer properties in the market. Currently, this stands at around half of the level during the past five years.

The supply and demand issues have also seen rent rises of 142% in the past five years, with this trend continuing in 2023.

Unlike the rent rises in the rental market, house prices may dip by around 5% according to market analysts. The fall in demand due to the increase in interest rates, alongside the rise in inflation and the continued rise in the cost of living, has meant that affordability has had a massive impact.

This expected short-term dip comes after a strong rise in property prices since the pandemic. However, over the longer term, house prices will most likely continue rising due to the overall shortage of homes and rising population growth.

Is a buy-to-let property still a good investment? This depends entirely on individual circumstances. However, with the expected buyer demand falling, and higher rental income being achieved, it does place property investors in a good position, as they may be able to negotiate a better asking price. But it's worth seeking advice to make sure you are making the right decision based on your circumstances.

The buy-to-let property market is likely to encounter some ‘bumps’ in the coming year as a result of higher mortgage rates and the impact of the cost-of-living squeeze on renters. House prices could also dip, reducing the value of investment properties, but creating an attractive proposition for buyers.

With demand for rental properties outstripping supply, and continued rent rises expected over the coming months, many investors are still considering investing in buy-to-let properties over the long term.

Whether you are a novice investor looking to become a landlord or are an existing landlord with several properties, our dedicated team are here to help and guide you in the current property market conditions.

To book a property investment consultation, please call them on 0116 266 9977.