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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