Landlords slash borrowing amid rising interest rates

Buy to let landlords have cut down their mortgage debt by almost 20% in a year of economic turmoil, according to a new report.

Octane Capital has compared the total amount of borrowing among BTL landlords between Q3 2022 and Q2 2023 and the same period the year before.

It found that landlords reduced their borrowing by around £7 billion over that time, from £37.9 billion in 2021-2022 to £30.4 billion in 2022-2023.

This means that buy to let landlords collectively reduced their borrowing by -19.8% in just a single year.

‘Landlords are taking fewer risks with their borrowing’

Octane’s chief executive, Jonathan Samuels, said: “Landlords are taking fewer risks with their borrowing, which makes sense given how the market has become objectively less attractive in the past couple of years.

“No longer are buy to let mortgages available for 2-3%, so it’s less economically viable to invest in property on a highly leveraged basis.”

He adds: “Now landlords are in a period where they’re adjusting to a new normal, where they need to be strategic and consider using a larger deposit if they want to continue growing their portfolios.

Rising levels of mortgage interest rates

Octane says the trend to pay down debt is in response to the rising levels of mortgage interest rates, which were influenced by other factors too.

They include the Bank of England base rate increasing from 0.1% in December 2021 to 5.0% in June 2023, making borrowing more expensive for landlords and homeowners alike.

And the Russian invasion of Ukraine in February 2022 also had an inflationary effect on the cost of energy, which filtered through to other sectors.

Also, the former Prime Minister Liz Truss’s mini-Budget in September 2022, where she announced a selection of uncosted tax cuts, spooked the financial markets and caused mortgage interest rates to surge almost overnight.

Events have made investors more cautious

The report suggests that a range of events have made investors more cautious and reluctant to take on more debt.

The rest of the market followed a similar trend to buy to let, as lending to first-time buyers dropped from £68.1 billion in 2021-2022 to £65.9 billion in 2022-23, a reduction of -3.2%.

Meanwhile, all other forms of lending fell by -7.6%, from £92.2 billion to £85.2 billion.

Remortgage activity rose slightly, from £79.9 billion in 2021-2022 to £81.0 billion in 2022-2023, reflecting how more borrowers consolidated what they had rather than saddling themselves with fresh debt in the form of a new mortgage.

The report concluded that the UK mortgage market was undergoing a significant shift in response to the changing economic conditions and that borrowers needed to be more careful and flexible in their borrowing decisions.

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