Borrowing costs for landlords with buy-to-let (BTL) mortgages are anticipated to soar by as much as 80% as they face refinancing off of historically low fixed rates.

A new report by the Intermediary Mortgage Lenders Association (IMLA) has warned that landlords in this position are facing the prospect of struggling to break even in the next two years.

IMLA’s new report, based on a study among 503 landlords across the UK, looked to gain a better understanding of private rented sector (PRS) providers. The research found that 80% of landlords own one or two properties, making up 61% of private rented stock, while 13% are classed as portfolio landlords – those who own four or more properties – accounting for 39%.

Despite a surge in the number of landlords setting up corporate structures since the removal of tax deduction for interest rates in 2017, just 10% of all rented property is held in limited companies, with 90% still held in personal names. Only 3% of the UK PRS is owned by institutional investors.

IMLA executive director, Kate Davies, said: “The PRS plays a vital role in the UK’s housing landscape, providing homes to 20% of households. While a great deal of attention is, quite rightly, paid to the difficulties faced by tenants, there has been surprisingly little understanding of landlord finances and the strains on these, until now.

“Our research shows that many landlords are small businesses with modest financial turnover and trading profits, facing rapidly rising costs. Sadly, reality dictates that many mortgaged landlords will have no choice but to increase rents in order to keep their businesses viable, while debt-free landlords may well do the same in order to make an adequate return, even if that is lower than current returns available elsewhere.”

IMLA’s report also noted that changes to tax and legislation have already impacted the viability of many of these small businesses.

While only 36% of respondents in the research believed they were paying more tax as a result of the removal of the mortgage interest deduction, based on the income data supplied by respondents, IMLA calculated that 58% will actually be paying more tax.

Meanwhile, 64% of respondents said increased regulation had hiked their costs, rising to 73% of portfolio landlords. When asked what impact a mandatory rent freeze would have on their rental business, 7% indicated they would be forced to sell property or exit the market.

Davies added: “There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved. Landlords’ tenacity is to be commended – it is a great relief that so many plan to stay in the sector and increase supply when they can.

“Policymakers should beware adopting any policies which could upset what is already a delicate balance, and ensure they do nothing further to deter the small businesses which form the backbone of the PRS from continuing to invest.”

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