In the face of rising interest rates, a specialist buy-to-let mortgage broker argues that the government must extend support not only to homeowners grappling with skyrocketing mortgage payments but also to landlords who are experiencing significant challenges. Angus Stewart, the CEO of online brokerage Property Master, highlights the detrimental impact of interest rate hikes on landlords’ businesses, which have been exacerbated by stricter affordability regulations and changes to interest rate relief rules implemented by George Osborne in 2015.
While these changes had minimal repercussions when interest rates were low, they are now severely impacting landlords’ profitability. Unable to remortgage at current rent levels due to the stringent affordability criteria, many landlords find themselves trapped on the lender’s Standard Variable Rate (SVR), some of which are approaching an alarming 10 percent. Consequently, these landlords become “mortgage prisoners” left with no viable options other than selling their properties or significantly increasing rents.
Recent research conducted among Property Master customers reveals that 40 percent of landlords have either recently sold or are contemplating selling one or more properties. The potential consequences of such actions would be far-reaching, significantly affecting tenants and the overall housing market. While the media has focused on aiding homeowners with the escalating costs of mortgages, it is imperative that the government does not overlook landlords, who play a crucial role in providing housing for approximately five million households.
Angus Stewart’s remarks come on the heels of the Bank of England’s decision to raise the base rate from 4.5 to 5.0 percent. This marks the 13th consecutive increase since the initial rise in rates in December 2021, starting from a mere 0.1 percent. Furthermore, it represents the fifth consecutive interest rate hike witnessed thus far in 2023, mirroring the pattern of eight consecutive base rate jumps in 2022. As a result, the current rate of 5.0 percent is the highest observed in over 15 years, dating back to April 2008.
In response to this development, Ben Beadle, CEO of the National Residential Landlords Association, emphasizes that this decision will further burden both renters and landlords. Given that 85 percent of buy-to-let mortgages are interest-only, landlords are particularly hard-hit by escalating mortgage costs. Since December 2021, some landlords have seen their mortgage payments surge by nearly 240 percent.
Analysis conducted for the National Residential Landlords Association reveals that if interest rates were to peak at five percent, 735,000 rental properties could be lost across the UK, thereby exacerbating the supply crisis currently faced by renters. It is illogical to have a tax system that discourages investment in rental homes while failing to provide vulnerable tenants with the assurance that they can afford their rents through benefit payments. Urgent action from the Chancellor is necessary to support the rental market by reintroducing full mortgage interest relief and unfreezing housing benefit rates.
In a separate study conducted by the lettings agency Leaders Romans Group, survey findings from 380 landlords who own privately rented properties and are registered with LRG brands reveal that only 68 percent definitively plan to maintain their property portfolios over the next year.
The current landscape presents a challenging situation for both landlords and homeowners alike. It is crucial for the government to recognize the mounting difficulties faced by landlords in sustaining their businesses and for measures to be implemented that alleviate the strain on both parties. By providing comprehensive support, the government can mitigate the potential loss of rental properties, address the supply crisis faced by renters, and ensure the stability of the housing market as a whole.