225,000 landlords in trouble as mortgage rates soar

225,000 landlords in trouble as mortgage rates soar

0:02 AM, 12th July 2023, About 11 months ago 7

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A new report has found that nearly 225,000 landlords could lose money on their rental properties when they renew their mortgages as buy to let rates approach 7%, the Daily Telegraph has revealed.

An analysis from real estate firm Hamptons has found that 11% of all mortgaged rentals – that’s around 226,930 properties – in the UK would not generate enough income to cover the costs of borrowing at current rates.

The average two-year BTL mortgage rate was 6.69% on Friday, while five-year deals were 6.52%, according to Moneyfacts.

The rising mortgage costs are driven by expectations that the Bank of England will hike its base rate to 6.25% by early next year, the highest level since 1998.

This would put further pressure on landlords, who are already facing higher taxes and stricter regulations in the sector.

The report warns that landlords who are unable to refinance or sell their properties could face negative equity or repossession, which could have knock-on effects on the housing market and the economy.

‘70% of landlords in England own a home with a mortgage’

Aneisha Beveridge, head of research at Hamptons, told the newspaper: “We know that nearly 70% of landlords in England own a home with a mortgage.

“That’s a much higher proportion than among owner-occupiers. So, landlords are more at risk to the new kind of higher rate environment than the average household.”

She added: “The highest-leveraged landlords who bought in the last couple of years are most at risk.

“They are the ones who have taken equity out of their properties or bought a new buy-to-let in the last couple of years.”

The buy-to-let market has become increasingly unprofitable

The Telegraph says that the buy-to-let market has become increasingly unprofitable for higher-rate taxpayers who have not adjusted their rents to reflect the changes in tax and mortgage rules.

The analysis shows that a higher-rate taxpaying landlord who bought a property costing £190,000 in 2021 with a 75% mortgage and charged the average rent for their area would now have a monthly shortfall of £227, after paying the mortgage, tax and maintenance costs.

That’s because of the reduction in mortgage interest tax relief, which was phased out completely in April this year, and the increase in stamp duty for second homes, which was introduced in April 2021.

Even if the landlord had raised the rent by 5% every year since 2021, in line with the national average, they would still be losing £119 a month.

The only way for the higher-rate taxpayer to make a profit would be to increase the rent by more than 10% a year, which is unfeasible in most areas.

Basic-rate taxpaying landlords are slightly better off

The survey found that basic-rate taxpaying landlords are slightly better off and would make a profit of £77 if they had kept the rent unchanged, or £185 if they had raised it by 5% a year.

However, that is still lower than the profits made before mortgage and tax changes of £282 or £390.

The findings suggest that landlords now face either having to raise rents or lower debt by selling some of their properties.

However, this move would put tenants under pressure who are increasingly facing a drop in rented home supply and higher rents.

Ms Beveridge said: “Any kind of new investor will really have to look at pumping in a lot more cash and putting down bigger deposits than they have done before.

“They just won’t meet the stress testing on those sorts of 75% loan-to-value mortgages, particularly in lower-yielding regions such London and the South East.”

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7:38 AM, 12th July 2023, About 11 months ago

It's game over for many, especially with S24.

How is this kerbing inflation, it's destroying a much needed sector.


10:39 AM, 12th July 2023, About 11 months ago

I have had a tracker mortgage since purchasing 20 years ago. Obviously when rates were low I made a profit. However at my present rate (1.75% over base) a small loss is inevitable.
I put the property on the market and had very little interest despite property in the same block always selling quickly.
It was costing about £1000 per month to leave it empty, hence I relet the property.
I am in a position to pay off the mortgage next April when my bond matures.Should I do this then the tax on the income will increase a lot due to having no mortgage.
I am a pensioner and the mortgage has 4-5 years left before expiring. My other concern is that judging by the poor shape the economy is in it could take years ( if ever) before property sells at a decent price.
The property is in my sole name therefore I am unable to use my wife’s tax allowance. Neither my wife or myself work . I am taxed on savings and the BTL. The income received is above the tax free allowance.
Would it be beneficial if I were to gift the property to my wife so her tax allowance would negate the tax I have to pay. All savings interest is my sole name and it’s difficult to open joint savings accounts due to us living outside the UK.
I am receiving good interest on my savings and think it worth considering not paying off the mortgage and taking a small loss on the rent.
Would the mortgage company extend the mortgage after it expires. I am 69 years of age, always paid the mortgage on time and have considerable equity in the property.


10:54 AM, 12th July 2023, About 11 months ago

Reply to the comment left by MIkeK123 at 12/07/2023 - 10:39
If you have one rental property, I would sell it when the time is right, perhaps not put the bond into the property in case you get a difficult tenant and you don't get rent and gave to go to court, at least then you will have the bond money.

You need to make that judgment call.


11:02 AM, 12th July 2023, About 11 months ago

Reply to the comment left by AT at 12/07/2023 - 10:54
I have used the letting agent for 20 years. Never had a troublesome tenant .Only 1 month void in that period . Current tenant ( single man) has a salary of 78k.
I have taken out insurance for loss of rent and legal expenses should a problem occur. Insurance cost is about 3.5% of monthly rent.

Susan Robinson

11:16 AM, 12th July 2023, About 11 months ago

Reply to the comment left by MIkeK123 at 12/07/2023 - 11:02Mike: have you considered offering it to your current tenant? See if he is interested; with a salary of £78K he should be able to get a good mortgage.


11:36 AM, 12th July 2023, About 11 months ago

The tenant has only moved in about 3 weeks so he is probably just getting used to the new surroundings.
I had 3 prospective tenants view the property the same day it was advertised. All 3 wanted to rent.
The letting agency gave me all the necessary information on the prospective tenants. I chose this tenant due to him being single , 57 years old and having a high income.
The letting agent are very thorough about references, income, previous rented addresses etc.
It would be a bonus if the tenant wanted to buy, but it’s early days.

Alex Gillies

16:25 PM, 12th July 2023, About 11 months ago

Reply to the comment left by MIkeK123 at 12/07/2023 - 11:36
Hi Mike, what area are you in? There may be scope to rent your property out on a guaranteed rent (Rent to Rent), you could offer a Let to Buy on the property if your current tenant would might be interested in it (or after this current tenant leaves), another investor might also be interested in a purchase lease option. Reach out to experienced property investors who should be able to find a solution for you, dependant on what what ultimate goals/plans you have. Just a few options, I hope something may help.

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