Forecast rises in interest rates could force landlords to raise rents to meet mortgage affordability criteria, or risk being trapped on higher rates, according to a buy-to-let expert.

This is because interest costs across the life of a buy-to-let mortgage would more than quadruple, going from £115 a month in interest now, compared to £479 with the rise in one example. 

The Office for Budget Responsibility has forecast a worst-case scenario whereby a ‘wage spiral’ or energy price shock would require the Bank of England to increase base rate to 3.5 per cent in 2023 to curb inflation.

Price hike: A rise in the base rate would incur greater mortgage costs for landlords, and they could pass this increase on to their tenants in the form of higher monthly rents

Price hike: A rise in the base rate would incur greater mortgage costs for landlords, and they could pass this increase on to their tenants in the form of higher monthly rents

The base rate is currently at a record-low level of 0.1 per cent, and has been since the beginning of the pandemic.

The OBR’s more conservative forecast would see the base rate increased to 0.75 per cent.

While not officially tied to the base rate, an increase would likely prompt mortgage lenders to up their rates to a similar degree.

If the more drastic prediction was realised, homeowners would see their payments increase by hundreds every month – and landlords even more, as the rates they pay are already typically higher. 

The table below shows how much the monthly cost of a buy-to-let mortgage would increase, if mortgage rates increased by the same amount as the base rate.  

BUY-TO-LET MORTGAGES: POSSIBLE COST INCREASES 
Mortgage amount   Current best rate Monthly payment  Rate +0.65%  +0.65% monthly payment  Rate +3.4%  +3.4% monthly payment 
£100,000, cbd oil depressed 25% deposit, 2 year fix, 25 year term   1.14%, £1705 fee  £383  1.77%  £414  4.54%  £558
£100,000, 25% deposit, 5 year fix, 25 year term    1.64%, £1,705 fee  £406  2.29%  £438  5.04%  £587 
£200,000, 25% deposit, 2 year fix, 25 year term    1.34%, £1,999 fee  £785  1.99%  £847  4.74%  £1,139 
£200,000, 25% deposit, 5 year fix, 25 year term    1.69%, £2,275 fee  £818  2.34  £881  5.09%  £1,180 

A mortgage expert has warned that rate changes like these would have a huge impact on landlords, who already pay interest rates higher than that of the average homeowner.

While he said that he was ‘not convinced’ that rates would be at 3.5 per cent by 2023, chief executive of buy-to-let specialist mortgage broker Property Master, Angus Stewart, said that this would have a ‘profound’ impact on landlords, and therefore renters.

It could cause their monthly mortgage interest payments to increase by up to four times when they came to remortgage, he said, meaning that they would have to increase rents significantly in order to cover the difference.