Buy to let landlords benefit from low interest rate decade

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According to research by Savills estate agents, landlords benefitted more from low interest rates than private homeowners over the last ten years.

After the financial crisis of 2007 – 2008, interest rates fell. In 2007, for interest-only loans, the average landlord paid £7,300 a year to a commercial mortgage. At the end of 2017, this average had dropped over £4,000 to £3.240. Over the same period, the average owner-occupier payments on residential mortgages have dropped just £181.

Many landlords use interest-only mortgages to keep their monthly repayments down. Owner owner-occupiers have difficulty obtaining interest-only loans. Lucian Cook, head of residential research at Savills said:

“Buy-to-let landlords have seen the benefit of the interest rate environment whereas most owner occupiers have had to pay out on a capital repayment basis. When interest rates are low those capital repayments are high by comparison.”

Although landlords have benefitted from lower interest rates, they have been hit by higher stamp duty and the reduction of tax relief on their commercial mortgage interest payments. This may have put off some landlords expanding their property portfolios or new investors entering the buy to let market.

Post 2007, house prices have steadily risen. Landlords have benefitted from the capital growth of their property portfolios.

Interest rates are expected to rise in 2018. If rates rise by 1% this would add an extra £10 billion cost to mortgages, with the average UK borrower paying £930 a year extra.

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