The perfect storm for landlords and tenants has arrived

The perfect storm for landlords and tenants has arrived

0:04 AM, 12th June 2023, About 11 months ago 8

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A financial expert is predicting misery for the property market in the months to come with rising interest rates hitting both landlords and potential first-time buyers.

Sarah Coles, the head of personal finance at Hargreaves Lansdown, says that with house prices and sales falling, plus the potential for mortgage rate hikes, the sector will be hit hard.

This will mean sellers are facing a ‘wretched summer’ with rising rates bringing ‘grief for renters too’.

In recent weeks, several lenders have highlighted that house buyer demand has been declining for a year, with buyers being affected by rising inflation and high prices.

‘Inflation was stickier than had been expected’

Sarah explains: “Towards the end of the month, the Bank of England revealed that inflation was stickier than had been expected, which rapidly raised interest rate expectations.

“These have been feeding through into higher fixed-rate mortgages ever since.

“The average two-year fixed mortgage is now over 5.8% – up from around 5.3% before the inflation figures were announced.”

She adds: “There’s every chance this will persuade buyers that this isn’t the climate to buy in.

“At times like this, buyers may think there’s less risk in waiting to see what happens to rates and prices before taking the plunge.

“Given that rates are expected to remain higher for months, this could seriously dent the market as we go through the rest of 2023.”

First-time buyers are remaining in the private rented sector

That also means that potential first-time buyers are remaining in the private rented sector for longer as they save up and ponder whether to buy with house prices falling.

Sarah told Property118: “More would-be first-time-buyers are likely to sit things out for a while, to see what happens next to prices and mortgage rates.

“They may well be joined by owners who decide to sell and rent for a while.

“This is likely to lead to a surge in demand and make it even more difficult to find an affordable rental property.”

Landlords are being buffeted by rising mortgage rates

While the prospects for the PRS appear to be rosy with rocketing demand, landlords too are also being buffeted by rising mortgage rates.

And many – as last week’s RICS report highlights – are looking at selling up.

Sarah says: “Higher mortgage rates are also hitting the beleaguered rental market.

“Reports from the agents read as increasingly desperate cries for help, as the imbalance in the market gets worse with each passing month.

“Landlords have been selling after concluding new legislation was too expensive to comply with, and they’ve now been joined by a swathe of buy-to-let lenders, who realise that, once they remortgage, higher rates mean the maths no longer adds up.

“Two-thirds of agents say more buy-to-let landlords are trying to sell.”

There are fewer homes to rent

The result is that with landlords leaving, or increasingly looking to do so if mortgages go up, means there are fewer homes to rent.

And with demand increasing, tenants will face stiffer competition and higher rents.

Sarah points out: “Rents are rising rapidly, and RICS expects these increases to average 6% in the coming years.

“Given that rent absorbs a far bigger chunk of people’s incomes than mortgages, these hikes will add insult to injury.

“It’s going to make it even more difficult for renters to stay on top of their finances, let alone to get a property deposit together and escape the rental trap.”

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Andrew Dove

10:01 AM, 12th June 2023, About 11 months ago

Unless landlords with mortgages and owning in their own name can borrow at less than 5%, very few will have a business that is profitable after tax. If you are a landlord and want to check your after tax cashflow, please check out the following free calculator that I have created...


12:47 PM, 12th June 2023, About 11 months ago

Reply to the comment left by Andrew Dove at 12/06/2023 - 10:01
Updated calculator works well with notes which are very useful indeed. I like the way it tells you what your breakeven rent should be especially as you can configure removal of 20% tax credit which Labour will do next year! It really does reveal how BTL leveraged property is on a knife edge of positive figure yields and can easily go negative hence the debate about do you put money into high interest accounts rather than stay in the rental market as rent increases will only go so far before a ceiling is reached.

Aman Sood

6:06 AM, 14th June 2023, About 11 months ago

The article correctly shows the reality of the market.
Only option left with landlords is short-term renting through companies like Letzi, who are still giving 15%+ returns in property investmemt, earlier landlords moved from standard BTL to HMO model which worked very well for them but now only short term letting is giving decent returns as HMO tenants have started defaulting on their rent due to other cost pressures.
Not sure when government will start thinking about us.


8:34 AM, 15th June 2023, About 11 months ago

Heres an interesting concept. My remaing 6 properties are all paid for and to be honest as I have other businesses I could happily let the tenants live there rent free (it is also possible I would be better off) and just let the properties appreciate in value over time. My tenants would be happy to pay for any repairs on this basis, but I can't even do that as legally I would still be responsible for insurance, repairs and gas checks as an AST would still be needed. You can't win whichever way you try

Ian Narbeth

10:50 AM, 16th June 2023, About 11 months ago

Reply to the comment left by GlanACC at 15/06/2023 - 08:34
By letting them live rent-free, long term you would do your tenants no favours. They would have no need to strive, to get better jobs, to move to a bigger and better property.
People in subsidised housing are less mobile and less ambitious.


14:49 PM, 16th June 2023, About 11 months ago

Reply to the comment left by Ian Narbeth at 16/06/2023 - 10:50
Interesting reply. It is assumed that people are ambitious and strive for a bigger and better property. In many cases, people are content with 'their lot' . 2 of my tenants have retired at 55 and are 'comfortably off' and have no intention of moving. A third has been in my property with his wife for 20+ years and they have no intention of moving. A fouth is divorced and can afford the rent but cant afford to buy, same as another who is in her 30's. The last one has lived in my property for over 5 years and is a landlord himself but can't sell his property because of a dispute with his brother who co owns it.

john thompson

8:41 AM, 17th June 2023, About 11 months ago

Apart from interest rates one of the biggest killers is the tax reform. Basically no longer able to claim mortgage interest payments as an expense. What other business cannot include all their expenses? It's just criminal. How has the government got away with this?
On top of that the ridiculous CGT charges, robbing a big chunk of our hard-earned gains at the end.
And the Conservatives are supposed to be the party supporting hard-working and entrepreneurial people, what a joke! they are now Labour 2 in a bad disguise. Anyway, way fewer BTLs with be paying any taxes soon, as boatloads of us are selling up, once my tenant's term comes to an end I will be another one of them.
Well done Sunak you utter buffoon, yet another complete cock up of an idea, oh and I will NEVER vote conservative again.

Tony Johnson

10:04 AM, 17th June 2023, About 11 months ago

I'm serving S21's next week too.

This is no longer an industry to be in. Never has a business been so hounded by a government.

Meanwhile the criminal Bankers are protected by successive governments and even bailed out time and time again.

Shocking discrimination against landlords just because they wont use existing laws against the idd rogue landlords and because the Courts don't do their jobs properly.

The tenants will bear the brunt of this.
Gove will be remembered for this disaster as his legacy.

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