Landlords with standard buy-to-let properties will lose money when interest rates start rising, new research shows.
This would be a double blow to landlords, following Chancellor George Osborne's tax crackdown that could create a severe profits shock.
The two measures combined could take the shine off buy-to-let as a long-term investment.
Especially since so many amateur landlords have entered into property investment without fully doing their sums.
However, the new research carried out by Platinum Property Partners (PPP) also shows that houses in multiple occupation (HMOs) will remain profitable even when the Bank of England does hike rates.
PPP has added its voice to those who have been urging buy-to-let investors to act now to beat the threat to their income.
Its research shows that an investor who bought the average buy-to-let property for £183,391 last year with a £138,594 mortgage would see their monthly interest payments leap from £462 to £809 if interest rates rose by 3%.
With the average gross monthly rental income currently £754, their investment would be operating at a loss.
PPP founder and chairman Steve Bolton said many landlords are vulnerable to rising rates.
“In recent years, there has been an influx of investors to the buy-to-let market, with bricks and mortar proving to generate returns that outperform all other asset classes.
“However, not all buy-to-let is equal, and our data shows that HMOs generate much higher rental income than standard BTL properties."
PPP's research shows that HMOs can generate up to four times as much rental income as standard buy-to-let property, and this will help landlords absorb increased mortgage costs.
Bolton said: “HMOs will therefore be an attractive option for investors looking for a lower risk strategy that achieves a strong level of income.”
He said the proposed restrictions to mortgage tax relief and looming interest rate rises mean that it has never been more crucial to have a decent cushion of rental income to absorb any rising costs.
“However, many landlords are failing to correctly calculate their returns, and our earlier research shows that a worrying number entered the buy-to-let market with very little forward planning.
“Without a clear picture of what they earn from their BTL investment, a landlord is more vulnerable to market changes.
"Landlords must have a clear strategy and plan ahead to be able to accurately assess how future proof their investments are.”