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UK Finance: buy-to-let arrears up 29% as one broker predicts "horrible ending" for landlords

ended 09. November 2023

Against a backdrop of higher interest rates and the cost of living crisis, arrears continued to rise in the third quarter, according to new data published by UK Finance, with landlords in particular struggling.

According to UK Finance, there were 11,540 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in the third quarter of 2023, 29% greater than in the previous quarter.

Within the total, there were 6,270 buy-to-let mortgages in the lightest arrears band (representing between 2.5 and 5 per cent of the outstanding balance). This was 33% greater than in the previous quarter.

Brokers were unsurprised by the data given the headwinds currently facing buy-to-let, with Craig Fish, director at London-based broker, Lodestone Mortgages & Protection, predicting a horrible ending for the sector: “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 and stress testing causing untold pain. When it comes to remortgaging, many landlords are finding that they are unable to do so, due to insufficient rental income and are having to stick with their current lender on higher-priced products. This results in landlords increasing the rent they charge, which in turn has a knock-on effect on the tenants who are unable to pay, resulting in rental voids. Historically, before the tax changes, landlords would have had surplus funds with which to weather this storm, but due to higher taxation, those reserves are now depleted and so mortgages go unpaid. This Catch-22 situation is seen in these worsening numbers in the buy-to-let sector. Worse is yet to come, and it seems there is no solution. Lenders seem like they don't want to lend, and the Government just want the tax income. I predict a horrible ending.”

Steven Morris, director at Bristol-based Advantage Financial Solutions, said landlords have been repeatedly bludgeoned in recent years: “This data isn't surprising in the least. Anyone who thinks being a small-scale landlord is a free gravy train needs to think again. Landlords have been bludgeoned by repeated blows since 2015, fiscal, political and now financial, and this is reflected in this bleak data. From a purely logical point of view, a few factors likely contribute to these recent arrear increases. Tenants are more likely to not pay their rent than someone is to not pay their own residential mortgage in times of hardship. It is far harder to remortgage a buy-to-let than a personal residence, as the amount you can borrow on the same rental has dropped by around a third since the mini-Budget. With even more landlords due to come off cheap fixed rates, it is only a matter of time before the Government's long-term campaign to oust landlords gathers further speed and arrears turn into repossessions.”

Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, shared much the same view: "The latest UK Finance data paints a grim picture of the economic reality we're in. Many homeowners are struggling with the cost of living crisis and, on top of this, the rising cost of their mortgages. With 1.6 million more low-rate mortgages ending in 2024, this will get a lot worse before it gets better. Tenants are also struggling with increased rents, which has seen a sharp spike in buy-to-let mortgages going into arrears on the previous quarter. Landlords have had an awful time of late due to tax changes, tighter regulations and mortgage rate increases. Now with their tenants not paying their rent, mortgage arrears are unavoidable for some, which will make the refinancing of their properties including their residential mortgage more difficult for years to come. This may leave many landlords questioning if it is worth selling up."

Graham Cox, founder at Bristol-based Self-Employed Mortgage Broker, added: “The level of landlord arrears shows just how unsustainable current rent levels are. Void periods are increasing as tenants jump ship, moving in with family or friends or into cheaper accommodation where available. Unless the UK gets house building, this mess will probably only get worse.”

Ranald Mitchell, director at Norwich-based Charwin Private Clients, said that what started as a dream for many could end as a nightmare: “This is a staggering rise in arrears and sadly unsurprising, but worryingly, we have not seen the worst of this. There is so much pressure on landlords as arrears increase and tenants struggle to make rent payments. Many of those affected will not be portfolio landlords, just normal people who aspire to build wealth through property. They rely on rent to cover the mortgage payments and will not have the personal resources to cope. Falling into arrears like this has a huge impact on their ability to refinance or mortgage for years in the future, and will have far-reaching consequences for their credit profiles. What was once a dream has turned into a nightmare for many.”

Gary Bush, director at the Potters Bar-based broker, MortgageShop.com, mirrored this scepticism: “Landlords have been well and truly killed off in the past eight years by the political party that is supposed to support entrepreneurs. What the UK is going to do for a resupply of rental properties once landlords do the inevitable and sell up their properties god only knows. An even more serious shortage of rental properties will add to the current disaster.”

Michelle Lawson, director at Lawson Financial, concluded: “I'm really not surprised to read this data at all. Landlords cannot continue to foot the bill. When you have the likes of local councils and Shelter not co-operating with landlords by advising tenants to sit tight and forcing bailiffs to remove tenants through the broken court system, the process is fundamentally flawed. A complete overhaul of the system is required as the private rented sector is already on its knees and this is not even the peak yet.”

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12 responses from the Newspage community

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Elliott Culley
Director at Switch Mortgage Finance
This is not a surprising figure to see. Landlords have been squeezed with tax and regulation changes in recent years. Now with interest rates as high as they are, it's no suprise this has led to landlord arrears. Interest-only mortgages are more greatly affected by interest rate rises and the majority of landlords with mortgages will be on interest-only and highly geared. I have seen many clients find the new mortgage payments are now higher than the rent they are receiving. To top it off they now can't offset the costs of the mortgage as an expense for tax purposes. These figures will likely increase next quarter.
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Michael Mooney
Director/ Mortgage Advisor at Mooney Mortgage and Protection
This awful data comes as no surprise. Many landlords I speak to have seen a significant increase in their monthly payments, due to the higher base rate and issues arising from the changes in legislation in Wales. It is not a cost that can quickly be moved onto the tenant during a cost of living crisis as extreme as the one we're still in. Many landlords are finding their new mortgage payments are now higher than the rent they are receiving. Worst of all, legislation will stop them being able to increase the level of rent to be able to cover their costs. In most cases now, when considering that the rental income is taxable income, it will be costing landlords money to keep tenants in the property. There are extremely testing times ahead for landlords and tenants alike. Conditions for landlords in Wales are likely to get worse 2024.
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Richard Thompson
Director at Abbeydale Mortgages
This data does not shock me, especially seeing the large increase in interest rates on buy-to-let mortgages. Existing landlords have seen their interest rates on many occasions double from what they previously had. They have not always been able to pass this increase onto their existing tenants in several situations I have seen. It is understandable in the current climate why more landlords are reducing their portfolio of properties.
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Graham Cox
Director at Bridging Hub
The level of landlord arrears shows just how unsustainable current rent levels are. Void periods are increasing as tenants jump ship, moving in with family or friends or into cheaper accommodation where available. Unless the UK gets house building, this mess will probably only get worse.
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Platinum
Ranald Mitchell
Director at Charwin Mortgages
This is a staggering rise in arrears and sadly unsurprising, but worryingly, we have not seen the worst of this. There is so much pressure on landlords as arrears increase and tenants struggle to make rent payments. Many of those affected will not be portfolio landlords, just normal people who aspire to build wealth through property. They rely on rent to cover the mortgage payments and will not have the personal resources to cope. Falling into arrears like this has a huge impact on their ability to refinance or mortgage for years in the future, and will have far-reaching consequences for their credit profiles. What was once a dream has turned into a nightmare for many.
Copy

Platinum
Stephen Perkins
Managing Director at Yellow Brick Mortgages
The latest UK Finance data paints a grim picture of the economic reality we're in. Many homeowners are struggling with the cost of living crisis and, on top of this, the rising cost of their mortgages. With 1.6 million more low-rate mortgages ending in 2024, this will get a lot worse before it gets better. Tenants are also struggling with increased rents, which has seen a sharp spike in buy-to-let mortgages going into arrears on the previous quarter. Landlords have had an awful time of late due to tax changes, tighter regulations and mortgage rate increases. Now with their tenants not paying their rent, mortgage arrears are unavoidable for some, which will make the refinancing of their properties including their residential mortgage more difficult for years to come. This may leave many landlords questioning if it is worth selling up.
Copy

Platinum
Craig Fish
Director at Lodestone Mortgages & Protection
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 and stress testing causing untold pain. When it comes to remortgaging many landlords are finding that they are unable to do so, due to insufficient rental income and are having to stick with their current lender on higher-priced products. This results in landlords increasing the rent they charge, which in turn has a knock-on effect on the tenants who are unable to pay, resulting in rental voids. Historically, before the tax changes, landlords would have had surplus funds with which to weather this storm, but due to higher taxation, those reserves are now depleted and so mortgages go unpaid. This Catch-22 situation is seen in these worsening numbers in the buy-to-let sector. Worse is yet to come, and it seems there is no solution. Lenders seem like they don't want to lend, and the government just want the tax income. I predict a horrible ending.
Copy

Platinum
Michelle Lawson
Director at Lawson Financial
I'm really not surprised to read this at all. Landlords cannot continue to foot the bill. When you have the likes of local councils and Shelter not co-operating with landlords by advising tenants to sit tight and forcing bailiffs to remove tenants through the broken court system, the process is fundamentally flawed. A complete overhaul of the system is required as the private rented sector is already on its knees and this is not even the peak yet.
Copy

Platinum
Justin Moy
Managing Director at EHF Mortgages
This just shows how difficult it has become to be a landlord of any size. Repeated tax increases, legislation mountains and tenants unable to pay rent, means landlords are slipping into arrears which will have significant repercussions on future borrowing costs. With the government so reliant on the private landlord sector to catch the huge shortfall in social housing stock, many landlords are looking for intervention ASAP. Even those professional landlords are feeling the pinch, with lenders stress testing their portfolios to higher rates even if they have legacy deals for a few years still, limiting future borrowing opportunities. For many, property was the great alternative to pension income, but this is now becoming a disaster for all types of landlord.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
Most lenders demand that rent is a minimum of 125% of the mortgage payment, for a buy-to-let. These are taken interest-only. The massive rise in interest rates mean that landlords who had taken the maximum loan last time are struggling to remortgage. Unless top slicing is available, or these increased costs are passed onto the tenants, then landlords can find themselves mortgage prisoners with no way of keeping up with the payments.
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Steven Morris
Advising Director at Advantage Financial Solutions
This isn't surprising in the least. Anyone who thinks being a small-scale landlord is a free gravy train needs to think again. Landlords have been bludgeoned by repeated blows since 2015, fiscal, political and now financial, and this is reflected in this bleak data. From a purely logical point of view, a few factors likely contribute to these recent arrear increases. Tenants are more likely to not pay their rent than someone is to not pay their own residential mortgage in times of hardship. It is far harder to remortgage a buy-to-let than a personal residence, as the amount you can borrow on the same rental has dropped by around a third since the mini-budget. With even more landlords due to come off cheap fixed rates, it is only a matter of time before the government's long-term campaign to oust landlords gathers further speed and arrears turn into repossessions.
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Gary Bush
Financial Adviser at MortgageShop.com
Landlords have been well and truly killed off in the past eight years by the political party that is supposed to support entrepreneurs. The only positive news during this period has been the Energy Performance Certificate criteria for tenanted properties being kicked down the road by the Tories. These latest mortgage arrears figures for landlord mortgages were inevitable, coming after a long line of negatives and now tenants struggling to pay their vital bills due to the economic situation. What the UK is going to do for a resupply of rental properties once landlords do the inevitable and sell up their properties god only knows. An even more serious shortage of rental properties will add to the current disaster.