Soaring rates, “crazy” fees and tougher rules are gutting small landlords’ profits and forcing a brutal rethink of buy‑to‑let
Higher interest rates, chunky product fees and a tightening regulatory net are reshaping the UK buy‑to‑let market – and the pain is landing hardest on small, part‑time landlords.
Brokers say the sector is increasingly tilted towards professional and incorporated investors, as one‑ and two‑property landlords struggle to make the numbers work on remortgage.
Margins wiped out by higher rates
From his vantage point across development, commercial and BTL, Ash Ajaz, director at Focus Finance Solutions, says life has “become tough for smaller landlords” who only own one or two properties.
He points to the Renters Reform Bill and a raft of new rules that have raised the bar for being a landlord just as financing costs have surged.
“Previously, if you were paying £400 a month for a mortgage and the rent you were getting was £1,500, you're still getting £1,500,” he told Mortgage Introducer. “But your mortgage payment has doubled, so now you're paying eight, 900 pounds because of how expensive the buy to let mortgages have become.”
Many borrowers who locked into ultra‑low rates around 1% are now refinancing at 4–5%, a shift Ajaz says has “completely killed” margins on some single‑let portfolios.
‘Crazy’ fees push leverage higher than landlords realise
On top of the headline rate shock, product fees in BTL have also “been crazy,” he warned.
When landlords add large percentage‑based arrangement fees to the loan, their true leverage can quietly creep well beyond the headline loan‑to‑value. “When someone is doing a 75 percent mortgage, technically their mortgage is 78, 79 percent,” he says.
If that property is then down‑valued at remortgage, borrowers can be left facing a sizeable equity injection just to refinance. “They have to pay something like 15–20 grand just to get out of it… because now the loan to value can be over 80.”
Tough choices at remortgage
Ajaz says his role is increasingly to walk clients through a series of unpalatable choices.
One option is to stay with the existing lender and make overpayments to effectively pay back the capitalised fee and drag the LTV down. The alternative is to move to a new lender and incur a fresh round of valuation, legal and broker costs.
Given flat or falling house prices in many regions over the past two years, hopes of a higher valuation on refinance are often misplaced, he adds, further limiting escape routes for over‑leveraged landlords.
Long game for those who can hold on
Despite the pressure, Ajaz cautions would‑be sellers against abandoning the sector too quickly.
“Property is a long game, so you can't just expect [quick returns],” he said. While he acknowledges that some landlords “rely on that income,” his advice is often to “bite the bullet” in the short term to preserve long‑term capital growth and equity build‑up.
For those still looking to grow, Ajaz emphasises a cradle‑to‑grave funding approach: acquisition finance, development funding and then an exit onto term BTL to repay bridging or development loans, release equity and “go again”.
In today’s tougher environment, he argues, that integrated support – combined with realistic expectations about yield, fees and regulation – may be the only way smaller landlords can remain in the game.
