The Bank of England has increased interest rates to 4%, adding fresh financial pressure on buy-to-let landlords. Tax and advisory firm Blick Rothenberg warns that higher mortgage costs could force more landlords to reconsider their investments.
The rate rise follows the government's decision to raise income tax rates on rental profits by four percentage points from April 2027. Together, the changes threaten to reduce rental profits and could encourage more landlords to sell.
Higher mortgage costs hit buy-to-let landlords
Heather Powell, partner at Blick Rothenberg, said landlords must reassess their finances as borrowing costs rise. "Buy to let landlords will be looking carefully at their finances, as they will now need to factor in higher mortgage costs in their investment appraisal following today's increase in the BOE base rate to 4%."
Powell added that the tax changes would place further pressure on returns. "This is on top of the additional 4% income tax on their rental profits they will need to pay from April 2027, which was announced in the Chancellor, John Healey's inaugural Autumn Budget."
The impact will depend on individual mortgage arrangements. Landlords with tracker mortgages could face immediate increases, while those on fixed rates may see higher costs when refinancing.
Renters' Rights Act limits rent increases
Powell also warned that landlords face tighter restrictions on raising rents under the Renters' Rights Act. The legislation limits rent increases in covered private tenancies to once a year. Tenants can also challenge increases they consider excessive.
Powell said: "The Rental Reform Act means that landlords cannot automatically pass these additional costs on to their tenants – they are now only allowed to increase rents once a year, and if the tenant believes the rent increase is out of line with the local area they can appeal to the Courts who will rule on whether it is fair of not."
She also claimed that some recent rulings had favoured tenants, including cases involving rent reductions. However, landlords can still propose increases through the relevant legal process. The tribunal assesses whether the proposed rent reflects local market conditions.
Warning of further landlord exits
Blick Rothenberg believes rising costs could accelerate the departure of landlords from the private rented sector. Powell said: "Buy to Let is increasingly less attractive as an investment, and those who already own buy to let properties are selling up."
She warned that fewer rental homes could eventually push rents higher. "The net result will be a reduction in rental properties and, in the long run, an increase in rents due to a shortage of supply."
For letting agents, further landlord exits could mean fewer properties under management. However, the financial impact will vary. Mortgage debt, rental yields and operating costs will influence whether landlords retain or sell their properties.
