Sharp rises in buy-to-let mortgage rates risk making the business models of large numbers of the UK’s two million private landlords “uneconomic”, according to Imla.  

The lender’s body says that private landlords “have for years been faced with a growing burden of regulatory and tax changes, which have increased their operating costs”.  

But it adds that until recently these additional costs be offset by historically low mortgage rates.  

However, higher mortgage rates after the September mini-Budget and last month’s disappointing inflation numbers have changed that.  

The association says: “While there is still no evidence of a mass exodus from the private rented sector, the loss of any rented properties will affect supply and almost certainly cause rents to rise in the long-term – to the detriment of tenants.”  

Landlords searching for new deals have, on average, seen the cost of their monthly interest payments jump by 76% over the last year, says its report, citing research by specialist lender Octane Capital.  

The lender body points out: “While the majority of landlords remain on low fixed-rate loans for now, their interest rate payments will rise over the coming months as they reach the end of their current fixed deals.”  

It adds this will force upwards pressure on rents, which landlords have moderated so far.  

In the year to April, existing private rents were up 4.8%, according to the Office for National Statistics.  

While newly agreed rents, excluding London, lifted 9.5% to £1,016 per calendar month in the year to May, says the Homelet Rental Index.  

The latest measure of consumer price inflation came in at 8.7% in April.  

The report says: “The relatively sudden increase in funding costs is causing a significant proportion of BTL landlords to fail affordability assessments when seeking to refinance loans.   

“Some may seek to exit the market altogether, while others may be obliged to sell some properties and re-balance the debt on their portfolios.”  

These cost pressures follow a raft of exemptions that have been stripped from BTL investors and replaced with tighter regulations over much of the past decade.  

Significant changes for landlords came with Section 24 legislation, introduced in the 2015 Finance Act, which each year made an additional quarter of landlords’ finance costs non-deductible between 2017 and 2021.  

An additional 3% stamp duty surcharge was introduced in 2016, when then-chancellor George Osborne sought to cap landlords’ share of home sales, then running at around 20%, in favour of owner-occupiers.  

A range of other legislation has been introduced in the past decade, from a ban on letting agents charging fees to tenants, to keeping the capital gains tax rate for residential property above the rate for other assets.   

Imla executive director Kate Davies says: “The private rented sector serves some 4.6 million households — the equivalent of 11 million people — and represents approximately 19% of the housing market.   

“Maintaining the health of the sector is therefore essential if we are to manage the UK’s chronic housing shortage.   

“Our report highlights the tough environment that landlords currently find themselves in and, more concerningly, the outlook for the private rented sector and tenants if policymakers’ approach to the sector doesn’t change.  

“Demand for rented housing is clearly high, and measures to increase tenant protections are important.   

“However, the focus now needs to be on prompting increased investment in the sector and supporting landlords, whose operating costs risk becoming unaffordable.   

“If we don’t get the balance right, the result will be higher rents, and lower availability of properties — both of which are bad news for tenants and landlords.”  

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