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0:01 AM, 23rd June 2023, About 11 months ago 8
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Here’s an interesting question for landlords to consider this week: would you prefer the government to offer you mortgage support or help your tenants pay their rent?
I was pondering this issue with politicians calling for homeowners to get mortgage payment support to tackle rising interest rates. Why?
Why is this an issue when calls to help pay high rents are ignored?
Rising interest rates from lenders affect everyone but I’m puzzled why the Bank of England is pursuing a 2% inflation target when costs and wages are going up. Higher mortgage costs mean there will be less money flushing around the economy and that means a recession is on the horizon too.
There is a school of thought that higher rates will bring recession anyway but don’t worry, all of this will be resolved by the time of the next election late next year (see previous Landlord Crusader articles).
Until then we have the prospect of BTL mortgage repayments soaring, but landlords sit on both sides of the fence of this debate since both options could benefit us in different ways.
Obviously, mortgage support could lower our monthly payments and ease cash flow, while rent support could ensure an income stream that is stable and secure.
But which one is better for you in the long run?
I ask the question because, to me, the answer is not so simple. There are pros and cons to both scenarios, and they depend on various factors such as your mortgage rate, rental yield, tax situation and your long-term goals.
If you didn’t already know, the government already offers mortgage support to homeowners who are struggling to pay their interest payments.
It is called Support for Mortgage Interest (SMI) and it’s essentially a loan that covers part of the interest on mortgages up to £200,000. To qualify, you need to be receiving certain benefits such as Universal Credit or Pension Credit.
It should come as no surprise that SMI is not available to landlords who have buy-to-let mortgages.
This means that if you are a landlord who is facing higher mortgage costs due to rising interest rates, you are on your own. (Has it ever been any other way?).
You may have to renegotiate your mortgage deal with your lender – at fast-rising rates – or switch to a cheaper provider. Or sell up to reduce your debt.
That’s what appears to be happening even with high yielding properties with landlords trying to duck the hefty mortgage increase. This Property118 article explains it well and there was another story this week about there not being a landlord exodus from the PRS. Well, not yet there isn’t.
Some landlords have argued that the government should extend SMI to buy-to-let mortgages, or at least offer some form of interest relief or subsidy.
They claim that this would help them cope with the cost-of-living crisis and prevent them from passing on the higher costs to their tenants.
However, this idea has been rejected by the government and, to be fair, it looks like homeowners won’t get anything either. First time buyers can access the mortgage guarantee scheme.
The main argument against mortgage support for landlords is that it would be unfair to renters, who are also facing higher living costs and have no asset to fall back on.
Renters spend an average of 28% of their monthly income on rent, it was revealed this week, and many of them are unable to save enough for a deposit to buy their own home.
Giving mortgage support to landlords would widen the gap between homeowners and renters, and potentially fuel house price inflation.
A possible alternative is for the government to offer more help to tenants who are struggling to pay their rent.
This could take the form of increasing the housing benefit or the local housing allowance (LHA).
The LHA is currently capped which means that many tenants have to top up the difference from their own pockets.
Increasing the housing benefit or the LHA would benefit both tenants and landlords.
That’s because tenants would have more disposable income and less stress about meeting their rent obligations.
Landlords would have more certainty about receiving their rent on time and in full, and less risk of arrears or evictions.
But hold on, this option also has its drawbacks. One of them is the cost to the taxpayer.
Increasing the housing benefit or the LHA would require more public spending, which could add to the government’s budget deficit and debt. The government may have to raise taxes or cut spending elsewhere to fund this policy.
Another drawback is the potential impact on the rental market.
Increasing the housing benefit or the LHA could create an incentive for landlords to raise rents, knowing that tenants are getting financial help.
That would create rent inflation and hurt those who can’t access benefits – and they’ll end up paying more too.
The big issue is that landlords are starting to panic over rising costs and falling profits, but we are loathed by the media and public, so financial help won’t happen.
Remortgaging homeowners will soon be struggling but we can’t simply pump billions into helping to pay mortgages (like the Lib Dem clowns in LaLa Land suggest).
To me, that isn’t equitable.
But we do need a stable and balanced housing market that offers fair returns and reasonable costs for both landlords, owners and renters.
That will demand a comprehensive and long-term approach that addresses the underlying issues of supply and demand, affordability, quality, regulation and taxation.
We will also need to confront an uncomfortable truth about the UK economy relying too heavily on the housing market.
If interest rates continue rising, we will undoubtedly enter a rocky period of falling house prices and rising costs that will force lots of landlords out.
We will also see remortgaging homeowners getting caught out and rents going up and affecting affordability.
Me? I’d like to see tenants getting more help so that the PRS continues to offer quality homes to those that need them. Landlords have an asset they can cash in at any time, cash-strapped tenants don’t but they do need somewhere to live at a reasonable price.
In difficult financial times, difficult decisions must be made by everyone but helping those who are struggling to pay rent benefits not only them but also landlords – and the wider housing market.
Until next time,
The Landlord Crusader
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NewYorkie
10:28 AM, 23rd June 2023, About 11 months ago
Not all landlords have an 'asset' to fall back on.
I'm now left with one such 'asset' because it was a new build flat which hasn't increased in value in 15 years, because it suffers from the dual blights of leasehold and cladding. It's a nice 2 bed, with parking, in a well-run [RTM] and secure development, in the centre of a city. What's not to like?
The mortgage will exceed the rent when this latest increase is applied, and I can't remortgage due to the tougher rules.
OK, I'm not overly concerned, but I have just told my tenant I will be selling up as soon as I can.
Help with the mortgage, or the tenant getting more LHA, really won't make much difference when you've lost all love for BTL.
John
12:12 PM, 23rd June 2023, About 11 months ago
No one should get any help with rent or higher mortgage costs be they private individuals or BTL landlords.
As to expecting any UK government to adopt a long term approach to anything let alone the housing crisis in the UK is pure fantasy.
Unfortunately our politicians are collectively useless
At the end of the day BTL is a business and all business carries risk.
If a landlord has taken on too much mortgage debt when rates were at historic lows then they either took a calculated risk or were foolish in believing rates would not increase again.
The Tax burden is at its highest level and taxpayers cannot be expected to bail everyone out. It is not a bottomless pit of money. The money has to come from Taxation.
Tim Rogers
13:04 PM, 23rd June 2023, About 11 months ago
Anyone who took out a Mortgage without factoring in a contingency for interest variations, really didn't think it through. That said no one expected Covid, followed by Putin miss calculating so badly, (some kind of action against Ukraine has been likely for a long time).
It's the speed of the interest rate increase that has shocked, the rate itself has just returned to the level I re-mortgaged at in 2008, ( pre crash). Like others here I can remember living through Maggie's 14%.
If we could remove mortgage rates from the political arena then the housing market, both for purchase and rental, would settle. If the UK adopted a system where a mortgage rate was set for the full length of the term, things would be a lot less volatile. This is common practice in Belgium, France, Germany and the Netherlands.
Jo Westlake
17:36 PM, 23rd June 2023, About 11 months ago
Getting rid of Section 24 and returning us to a standard method of taxation would help.
Increasing LHA to the 30th percentile would help some people. I don't know what percentage of tenants claim LHA. In my portfolio it's only currently 3 of my tenants. At least 2 of them are getting Discretionary Housing Payments to help bridge the gap.
Most landlords are already on interest only deals, so while switching home owners to interest only or longer terms would help them it wouldn't work for us.
Forcing lenders to allow us to make overpayments without penalty would be good. Some lenders allow 10% repayment a year without penalty. It would be useful if they all did.
TheBiggerPicture
19:53 PM, 23rd June 2023, About 11 months ago
Neither.
We have problems because as a society 'we' ask for governments to do too much for us, and to bear personal risk and socialise the losses.
Moral hazzard is a well known effect.
If the people who made the individual decisions shouldn't bear the risk and cost, why should people who had no part in the decision bear the risk and cost having even less responsibility.
GlanACC
10:59 AM, 24th June 2023, About 10 months ago
Even if you get mortgage support (perhaps like the old MIRAS scheme), it certainly won't be for 'commercial' mortgages like BTL mortgage. LHA rates won't move as there is no incentive. So both of these possibilities are a non-starter. Interestingly local councils are also now running out of hotels and lodging places to put people who have been S21 evicted (perhaps they will start using AirBNB).
NewYorkie
13:46 PM, 24th June 2023, About 10 months ago
Reply to the comment left by GlanACC at 24/06/2023 - 10:59Hotels are all being requisitioned by Home Office [Serco] for illegal migrants without due recourse to councils. This really is sounding sinister.
I'm assuming many of them will be given leave to stay [they don't qualify for 'asylum'!], and when they leave the hotel system, where are they to live? I saw yesterday that 300 Ukrainian refugees had left a luxury liner moored at Leith, where they had lived for a year, and they were so grateful. They are being replaced by illegal migrants, and the leftie lawyers and Edinburgh council are already claiming it's like putting them in prison!
TrevL
21:12 PM, 25th June 2023, About 10 months ago
Refreshing to see so many apposed to 'help' from the government, aka taxpayers. If you can't handle what is a cyclic certainty, you shouldn't be in the game.