Latest research finds landlords are now having to pay 40 per cent more on mortgage interest year-on year.

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The research undertaken by a leading nationwide estate and lettings agents found that in August BTL mortgaged investors ended up having to pay on average 37 per cent of their rental income on mortgage costs compared to August 2022’s 28 per cent.

The study’s figures finds the annual rental growth rise reached double figures across the UK in September with the average cost on new lets rising by 11.7 per cent against the same month last year.

In August the landlords’ average mortgage rate was 3.4 per cent which will rise once their fixed and reduced periods come to an end.

Aneisha Beveridge, head of research of the agents, said: “With mortgage interest often landlords’ largest cost, the pace at which rates have risen has squeezed investors. Even if there are no further rate hikes by the Bank of England, we could see the amount of mortgage interest paid by landlords exceed £20bn over the next two years.

“This has the potential to eat up just over half the amount mortgaged landlords receive in rent. For some investors, this will be unaffordable, and they will likely bow out, keeping upward pressure on rents.

“A decade of cheap money and rising house prices encouraged many landlords to remortgage and extract cash out of their buy-to-let when remortgaging. Our analysis suggests that most of this money wasn’t reinvested back into buying rental homes and was invested elsewhere or used to help their children buy their first home. Rising rates will reverse this flow of finance, pulling cash out of the economy and back into the housing market as investors look to pay down their debt instead.”

Annual rental growth across Great Britain remained in double-digits during September, with the average cost of a new let up by 11.7 per cent compared to  twelve months ago which makes it the second fastest increase ever recorded; August topped this with a 12 per cent increase.

Across London rents are rising faster than any other region in the UK and the average increase was by £322 per month equivalent to 15.7 per cent more expensive than a year ago.