Landlords hit by rising arrears in buy to let market

Landlords hit by rising arrears in buy to let market

0:03 AM, 13th July 2023, About A year ago 1

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BTL mortgage arrears are rocketing for landlords in the private rented sector (PRS), while they are falling for homeowners, a new study reveals.

The research from Octane Capital, a specialist property lender, analysed industry data on the proportion of mortgages that are behind on payments by 2.5% or more of the loan balance and compared the situation of BTL and residential borrowers before and after the pandemic.

The results show that the number of BTL mortgages in arrears increased by 42.6% in four years – from 4,930 in the first quarter of 2019 to 7,030 in the same quarter of 2023.

In contrast, the number of residential mortgages in arrears fell by -8.6% over the same period, from 83,870 to 76,630.

Landlords are struggling with higher mortgage rates

The findings suggest that landlords are struggling with higher mortgage rates, while homeowners may benefit from lower interest rates and government support schemes.

Octane’s chief executive, Jonathan Samuels, said: “It’s certainly a worrisome time for the property market, with mortgage rates and high inflation stretching people’s affordability to the limit.

“It’s striking that buy to let landlords are becoming less shielded over time from the economic conditions, suggesting they are unable to entirely recoup their lost income in the form of higher rents.”

He added: “The research suggests levels of arrears are in no way out of control however, so there’s no need to be too doom and gloom about the state of the housing market.”

Residential borrowers make up the majority of cases of arrears

However, the Octane study also found that residential borrowers still make up most cases of arrears, accounting for 0.87% of total homeowner loans outstanding in the first quarter of 2023.

This proportion has remained relatively stable over the past four years, reaching a peak of 0.94% in the first quarter of 2021.

In contrast, the number of landlords in arrears of 2.5% or more of their mortgage balance was 0.34% of total outstanding buy-to-let loans.

When landlords and homeowners remortgage

The figures also point to issues that will come when landlords and homeowners remortgage with typical five-year fixed mortgage rates now climbing above 6%.

Homeowners will benefit from Chancellor Jeremy Hunt’s to introduce a mortgage charter that will see them able to switch to an interest-only mortgage for six months without impacting their credit score.

Also, no customer can be repossessed until 12 months after their first missed payment, giving them time to get their finances back in order.

Mr Samuels said: “The Chancellor’s mortgage forbearance measures are designed to reassure people who are worried about the impact of rising rates, and it’s welcome these measures have been introduced before the horse has bolted – cases of arrears need to be tackled before people fall into trouble.

“We’d still recommend mortgage holders to keep paying their loans as normal unless they are in need of emergency action, as measures like interest-only loans will only result in higher payments down the line to compensate.”

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Judith Wordsworth

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12:00 PM, 13th July 2023, About A year ago

Sadly it's quite socially acceptable for people to not pay their rent!

Social change is not always a good thing.

Many renters in arrears would rather not change their life styles, not live within their means.

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