Buy-to-let landlords are fuelled by mortgages, meaning higher rates are likely to affect the majority of the UK’s property investors.
Specialist property lending experts, Octane Capital, analysed the typical size of landlord portfolios, as well as number of buy-to-let mortgages held across England and Wales.
The results found that across England and Wales a significant 78% of the average buy-to-let portfolio is financed by borrowing.
East Midlands home to the highest level of buy-to-let borrowing
Landlords are particularly reliant on mortgages in the East Midlands, where 97% of properties are held with a loan.
This is followed by the West Midlands and Wales, where 89% and 83% of investment properties are currently financed with a mortgage.
This far higher percentage of leverage suggests that these areas of the buy-to-let market present the greatest degree of vulnerability to landlords, who may struggle to make the economics of their investment work during a sustained period of higher interest rates. As a result, they could see a higher number of landlords opting to exit the sector and putting their portfolio properties up or sale.
Yorkshire and the Humber is the area with the lowest proportion of properties held with a loan, at just 67%, meaning investors are less affected by rising rates in the region.
A relatively low ratio of properties are also mortgaged in the South West and the North West, at 67% and 70% respectively.
CEO of Octane Capital, Jonathan Samuels said, “The rising cost of mortgages has been a challenging storm for landlords to weather, and considering their reliance on mortgage finance it’s easy to see why.
“In much of the country the overwhelming majority of investment properties are held with a loan, meaning those landlords will have no choice but to raise rents to compensate for rising interest rates.
“This is particularly the case in the East and West Midlands, where many will be feeling the pinch when they remortgage going forward.
“Investors in Yorkshire and the Humber are least affected, with a third of investment properties being owned outright, so some landlords should be shielded from the tougher market conditions.”