A recent analysis conducted by Octane Capital has unveiled a concerning trend in the buy-to-let (BTL) sector, indicating that arrears are worsening at a faster rate compared to homeowners. The study examined industry data on mortgage delinquencies, specifically focusing on cases where the arrears amounted to 2.5% or more of the mortgage balance. Additionally, it compared the performance of the BTL and residential sectors with their pre-pandemic figures.
According to Octane Capital’s findings, cases of BTL arrears exceeding 2.5% of the loan amount have surged by 42.6% over the past four years. In the first quarter of 2019, there were 4,930 such cases reported, which increased to 7,030 by the first quarter of 2023.
In stark contrast, arrears for homeowners above the 2.5% threshold have actually declined by 8.6% during the same period. The number of homeowners experiencing arrears dropped from 83,870 in Q1 2019 to 76,630 in the corresponding quarter of this year.
This discrepancy suggests that fewer landlords are being shielded from the current economic climate, primarily due to a faster increase in mortgage rates and energy prices compared to rental rates.
Although the total number of residential homeowners struggling with arrears is higher, accounting for 76,630 cases in the first quarter of 2023, this represents a smaller proportion relative to the total outstanding homeowner loans. Specifically, it corresponds to 0.87% of all homeowner loans outstanding. This percentage has remained relatively stable over the past four years, reaching its peak at 0.94% in the first quarter of 2021.
On the other hand, BTL landlords in arrears of 2.5% or more of their mortgage balance reached a total of 7,030 during Q1 2023, constituting 0.34% of the total outstanding BTL loans. Although this proportion is less than half that of owner-occupiers, it represents the highest number of BTL arrears since Q1 2019. Moreover, it is the highest proportion of BTL loans, excluding Q4 2022 when it also stood at 0.34%.
Jonathan Samuels, the CEO of Octane Capital, expressed his concerns regarding the diminishing protection for BTL landlords in light of current economic conditions. He highlighted the inability of landlords to fully recover lost income through increased rents, as mortgage rates and energy prices continue to rise.
Samuels further emphasized the importance of addressing arrears proactively rather than waiting for individuals to fall into financial distress. He commended the government’s mortgage forbearance measures, designed to alleviate concerns about rising interest rates, urging borrowers to continue their loan payments unless emergency action is required. Samuels cautioned against relying on interest-only loans, as they may result in higher payments down the line to compensate.
The study’s findings underscore the need for ongoing monitoring and support for both BTL landlords and residential homeowners, particularly as economic conditions evolve.