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Crunch capital as London landlords "nearing crisis point"

ended 04. September 2023

New data from Dashly, the mortgage insight platform that monitors over £100 billion of mortgages, shows that landlords in London renewing their mortgage in the autumn and spring will be, on average, £6384 worse off each year.

Based on a sample of 1,000 buy-to-let mortgages in the capital with initial rates expiring between Sept 23 and April 24, and assuming borrowers switch to the best available rate instead of lapsing onto their standard variable rate, Dashly's analysis found that the average monthly mortgage payment for London landlords is set to rise from £662 to £1194 as the remortgage crunch takes hold — an increase of £532 compared to the current average deal secured during a period of historically low rates.

The result is an average increase in mortgage payments for London landlords of £6384 per year, which equates to an 80% rise. The average buy-to-let mortgage rate, according to Dashly, will rise from 2.24% to 5.42%.

Dashly CEO, Ross Boyd, said: “Millions are feeling the remortgage crunch but few, based on this evidence, are feeling it like London's landlords.”

Brokers and lettings agents confirmed the gravity of the situation. Imran Khan, co-founder of Canary Wharf-based lettings specialist, PropertyLoop, said simply: “London landlords are nearing crisis point. In my 20 years working in property, I've never seen such a precarious landscape."

Ominously, Khan added that it's not just smaller, amateur landlords who are suffering. “One recent example involved a landlord with a 100-property portfolio who had to hand back keys due to untenable mortgage payments.”

The result of higher interest rates and increased taxation, Khan says, is “an unprecedented exodus of landlords from London, which risks driving up rental prices due to decreased supply".

One professional portfolio landlord in the capital, Kundan Bhaduri, director of The Kushman Group, said: “With average monthly mortgage payments set to rise from a relatively benign £662 to a bone-crushing £1194, the current situation for most small landlords in London is like riding a unicycle on a tightrope over a pit of sharks.”

Bhaduri added: “With most small landlords in the capital only having small savings to hand, it's hard to see how a major repossession crisis can be averted. The Government and Treasury in particular must step in immediately to stop the brutal treatment of the buy-to-let mortgage sector."

Craig Fish, managing director at London-based mortgage broker, Lodestone, said many landlords are now looking beyond the capital, in many cases far beyond, to make the numbers stack up, which in turn will impact London house prices: “The mass exodus will soon begin, which in turn will have a significant downward impact on property prices in London and the south-east. Many of our professional landlord clients have now shifted their attention away from the capital to the Midlands and north of England where rental yields are more favourable. We are also witnessing a similar exodus in the lender community, with many high street lenders making changes that eliminate most landlord scenarios. This will result in only specialist buy-to-let lenders remaining, with a focus on limited company lending.”

Khan agreed with Fish that the current lending environment is not helping landlords: “Santander's new affordability rates announced late August aren't an anomaly, they're a sign of more constraints to come.” Much the same conclusion was drawn by Riz Malik, director of independent mortgage broker, R3 Mortgages: “When attempting to refinance, landlords' choices are often limited, and some can't even secure enough funds to settle their existing mortgages, trapping them in their current financial arrangements.”

Meanwhile, Samuel Mather-Holgate of financial advisory firm, Mather & Murray Financial, said landlords in the capital are between a rock and a hard place: “Landlords in London are faced with two bad options: accept massively higher interest rates, which mean you’re over £500 per month worse off, or sell up at a discounted price to get out of the chaos that is being a landlord in the capital. Buy-to-let has been hit with multiple tax changes over the years making it difficult to make a profit, but the latest rate rises have seen a lot of geared landlords incurring a significant loss. This will fuel the oversupply of property for sale in London and prices will continue to spiral downwards.”

Justin Moy of broker EHF Mortgages confirmed that a growing number of London landlords are now throwing in the towel, preferring a reduced sale price to ongoing pain: “More and more smaller landlords will attempt to sell their way out of this rather than ride it out. London landlords are dammed if they stick, dammed if they sell."

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7 responses from the Newspage community

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Kundan BhaduriVerified
Property Developer and Portfolio Landlord at The Kushman Group
With average monthly mortgage payments set to rise from a relatively benign £662 to a bone-crushing £1,194, the current situation for most small landlords in London is like riding a unicycle on a tightrope over a pit of sharks. Now that rents are already sky-high and Sadiq Khan keeps squeaking about rent controls for cheap votes without understanding the underlying economics, blaming ‘evil landlords’ for his own incompetence, there’s not much an average London landlord can do. It's like a financial game of Whac-A-Mole, where the moles being constantly smacked are the landlords. With most small landlords only having small savings to hand, it's hard to see how a major repossession crisis can be averted. The Government and Treasury in particular must step in immediately to stop the brutal treatment of the buy-to-let mortgage sector.
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Imran Khan0
Co-founder & CEO at QuantumLoopAI
London landlords are nearing crisis point. This is especially the case for those accustomed to 15 years of low interest rates. One recent example involved a landlord with a 100-property portfolio who had to hand back keys due to untenable mortgage payments. Landlords are caught between a rock and a hard place. In my 20 years working in property, I've never seen such a precarious landscape. Landlords are not raising rents by choice but necessity, forced by escalating costs from higher interest rates and increased taxation. Consequently, we're seeing an unprecedented exodus of landlords from London, which risks driving up rental prices due to decreased supply. Santander's new affordability rates announced late August aren't an anomaly, they're a sign of more constraints to come. And it's not just a shift from London to other UK regions: many landlords are exiting property investment altogether, exploring other asset classes. This leaves London’s rental market in highly uncertain waters.
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Samuel Mather-HolgateVerified
Independent Financial Adviser at Mather and Murray Financial
Landlords in London are faced with two bad options: accept massively higher interest rates, which mean you’re over £500 per month worse off, or sell up at a discounted price to get out of the chaos that is being a landlord in the capital. Buy-to-let has been hit with multiple tax changes over the years making it difficult to make a profit, but the latest rate rises have seen a lot of geared landlords incurring a significant loss. This will fuel the oversupply of property for sale in London and prices will continue to spiral downwards. Ensuring you have the best rate and market rent is important, but thinking about putting extra capital in to qualify for lower loan-to-value rates must also be considered if you’re keen to cling on to your investment.
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Craig FishVerified
Director at Lodestone Mortgages
In the next few months, we are going to witness a big change in the buy-to-let landscape. The end is nigh for the accidental and small landlord, and for those with larger portfolios that are geared above 50%. The mass exodus will soon begin, which in turn will have a significant downward impact on property prices in London and the south-east. Many of our professional landlord clients have now shifted their attention away from the capital to the Midlands and north of England where rental yields are more favourable. We are also witnessing a similar exodus in the lender community, with many high street lenders making changes that eliminate most landlord scenarios. This will result in only specialist buy-to-let lenders remaining, with a focus on limited company lending.
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Justin MoyVerified
Managing Director at EHF Mortgages
The Capital typically suffers the worst in these kinds of conditions, especially when you have landlords who are highly geared and are rapidly exposed to higher mortgage rates. Lots will not have had the foresight to put money aside for this situation. More and more smaller landlords will attempt to sell their way out of this rather than ride it out. For those landlords who have a diverse investment strategy, not earning a lot of profit from property for the next few years will be offset by cash and equity returns. Those landlords solely invested in property will need a contingency plan for low returns, and to ensure their rents are in line with the market. London landlords are dammed if they stick, dammed if they sell.
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Riz MalikVerified
Independent Financial Adviser at R3 Wealth
During the past year, landlords have largely been left to manage on their own, with those in the capital and its vicinity feeling the most pressure. When attempting to refinance, their choices are often limited, and some can't even secure enough funds to settle their existing mortgages, trapping them in their current financial arrangements. The main incentive for landlords investing in London and the south-east has traditionally been the prospect of long-term capital appreciation rather than short-term yields. This assumes that the rent will cover all ongoing expenses. Yet, for numerous landlords, this is no longer the case, leading to higher costs being shouldered by the tenants and this is unlikely to end any time soon.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
One of the biggest losers in the rate rises we have seen over the past year or so has been landlords. Rising interest rates affect interest-only mortgages payments more and it has become harder and harder to satisfy mortgage affordability criteria for highly geared properties. At the current level of rates, there is no profit to be made without increasing rents and quite a few are now loss making. As a result many part-time and accidental landlords have decided to sell up. With all the other changes for landlords in recent years, most have had enough and I don't anticipate them coming back unless things change quite dramatically. This all has huge ramifications for tenants, as the current supply and demand issue will be amplified further.