Introduction:

Landlords in the UK are facing increasing financial difficulties as higher mortgage rates imposed by lenders push them into arrears and repossession. Recent data reveals that landlords are more likely to have their properties repossessed compared to live-in homeowners, with a significant rise in arrears for the former group. The challenging situation arises from landlords being forced onto their lender’s Standard Variable Rate (SVR) when product switches are unavailable, leading to higher costs. As a result, landlords are left with limited options: either raise rents or face losing their properties. In this blog post, we will delve into the factors contributing to this issue and the potential consequences for the rental market.

Landlords Hit Hard:

A report by UK Finance highlights that in the first quarter of this year, approximately one-third (35%) of all repossessed properties were owned by landlords. Comparatively, live-in homeowners experienced a mere 5% increase in arrears during the same period. This indicates a disproportionately high impact on landlords due to the rising mortgage costs. Many landlords find themselves compelled to switch to their lender’s SVR, which averages at a staggering 8.45% according to Uswitch. These rates, combined with the requirement for buy-to-let customers to be able to afford future interest rates of 9-10%, make it unattainable for numerous landlords to remortgage their properties.

Repossessions Disproportionately Affecting Landlords:

An analysis by The Telegraph reveals that although buy-to-let properties account for 19% of all mortgaged homes in England, landlords were disproportionately affected by repossessions in the early months of the year. Landlords accounted for 35% of all repossessions between January and March, while live-in homeowners constituted 65%. This discrepancy is concerning considering that live-in homeowners make up 81% of mortgaged homes. The data suggests that the financial pressure faced by landlords is leading to higher rates of property loss, potentially impacting the availability of rental housing.

Rising Costs and Unaffordable Mortgages:

Landlords who fail to secure product switches are left with two unfavorable choices, as highlighted by brokers. They must either increase tenants’ rents to cope with the SVR or face losing their properties through forced sales or repossession. The majority of buy-to-let mortgages are interest-only, which puts landlords at higher risk as rates rise. The National Residential Landlords Association (NRLA) emphasizes that landlords are grappling with the dilemma of covering growing costs or exiting the market. Urgent action is needed to prevent a reduction in the private rented sector and ensure renters can access high-quality accommodation.

Calls for Intervention:

The NRLA is campaigning for the reintroduction of mortgage interest relief and unfreezing housing benefit rates to alleviate the burden on landlords. Additionally, some specialist buy-to-let lenders have stopped offering product switches, exacerbating the problem. The withdrawal of these options, coupled with lenders’ inflexibility and the unaffordability of remortgaging, leaves landlords in a predicament where they are either stuck or forced to sell their properties. It is crucial for landlords to have access to viable alternatives that enable them to navigate the changing mortgage landscape.

Conclusion:

Landlords in the UK are facing significant challenges as higher mortgage rates push them into arrears and increase the risk of property repossession. With a disproportionate number of repossessed properties belonging to landlords, it is evident that the rental market is being significantly affected. Urgent action is needed to support landlords, such as reintroducing mortgage interest relief and addressing frozen housing benefit rates. Ensuring the availability of alternative mortgage options for landlords will help prevent further property loss and maintain a thriving private rented sector.