The owners of more than 11,500 rental properties were behind on their mortgage payments over the last three months as rising mortgage rates continue to cripple landlords’ finances.
Data from UK Finance, the banking trade body, found that there were 11,540 buy-to-let mortgages in arrears of 2.5 per cent or more of their overall loan in the third quarter of 2023, up 29 per cent on the three months before.
Like all mortgage holders, landlords who do not own their properties outright have been hit — or will potentially be hit — by higher mortgage rates. Experts have said the rising costs are having a drastic effect on landlords’ personal finances and resulting in an exodus from the rental market.
“This is a staggering rise in arrears and sadly unsurprising. Worryingly, we have not seen the worst of this. Landlords rely on rent to cover their mortgage payments, and many will not have the personal resources to cope,” said Ranald Mitchell from Charwin Private Clients.
“Falling into arrears like this has a huge impact on their ability to remortgage for years to come, and it will have far-reaching consequences for their credit profiles. What was once a dream has turned into a nightmare for many.”
Since December 2021, the Bank of England has gradually increased the base rate from 0.1 per cent to 5.25 per cent today in a bid to fight high inflation. This feeds through to the interest rate you are awarded on your savings and that which you pay on your mortgage.
The average two-year buy-to-let mortgage now costs 6.22 per cent, compared to 2.9 per cent two years ago and 3.05 per cent five years ago, according to the data company Moneyfacts.
If a landlord with a £300,000 mortgage was remortgaging after five years today, they would see their monthly costs jump to £1,555 from £762. If they were coming off a two-year deal, their monthly costs would rise to £1,555 from £725.
According to the estate agent Hamptons, landlords in the UK are now paying 40 per cent more — or a combined £4.3bn — in interest payments than last year.
For many, the numbers simply no longer add up. Around a quarter of landlords are planning to sell a property over the next 12 months, according to a survey from Simply Business, and almost one in 10 said they had sold a property in the last 12 months. Some 43 per cent said the decision to sell up was based on higher mortgage rates.
On the other end of the spectrum, just 3 per cent of landlords were planning to buy a new rental property.
The rising costs of mortgages for landlords and a shrinking rental property market has a knock-on effect on the cost of rent. According to Hamptons, the average cost of rent in Great Britain increased by 11.7 per cent to £1,325 a month in the year to September.
Graham Cox, from the Self-Employed Mortgage Broker, said: “The current rent levels are completely unsustainable. It means that landlords are experiencing void periods when tenants jump shop, move in with family and friends or into cheaper accommodation where available.”
High mortgage rates are the latest in a string of changes to the buy-to-let sector that has made it harder for landlords to make money from their rental properties.
In 2016, the amount of income tax relief landlords could claim was restricted, meaning they had to pay tax on a larger portion of the rent they received. Landlords also used to be able to take 10 per cent off their rental income for “wear and tear”, but now they can only claim for any actual costs that they incur.
Expanding a rental portfolio has also become more expensive, as most buy-to-let owners now pay an extra 3 per cent in stamp duty. The stamp duty bill on a £300,000 house rose from £2,500 to £11,500.
“The buy-to-let sector has been hit harder than any of late. As if the taxation changes weren’t bad enough, we now have higher interest rates causing untold pain,” said Craig Fish, director at Lodestone Mortgages and Protection.
“Historically, landlords would have had surplus funds to weather this storm, but those reserves are now depleted and so mortgages go unpaid. The worst is yet to come, and it seems there is no solution. I predict a horrible ending.”
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