Mortgage arrears for UK landlords
The LandlordBuyer team tracks a number of property reports to get a holistic picture of the market. While inflation trends, rental indexes and house price data help us advise our landlord clients, there are other documents that influence our guidance.
One is the UK Finance Arrears and Possessions quarterly report, which provides an excellent snapshot of how borrowers are faring in terms of affordability. It also flags up whether we’re in for an increased number of ‘distressed’ property sales.
The most recent UK Finance Arrears and Possessions report reflected activity seen in the last quarter of 2023. The figures indicate the cost of living crisis has begun to bite. When it comes to homeowner mortgages, there were 93,680 owner-occupiers in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2023. This was 7% greater than in the previous quarter.
The news was more bleak for landlords. UK Finance found there were 13,570 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2023. This was a marked hike when compared to the previous quarter – an increase of 18%.
While percentages tell the top-line story of more landlords falling behind with their buy-to-let mortgage repayments, they mask the true extent of the issue. The report detailed how 500 buy-to-let mortgaged properties were taken into possession in the fourth quarter of 2023 – 11% more than in the previous quarter.
So, what’s the backstory behind more landlords defaulting on their buy-to-let mortgages? The rising cost of repayments is something we explored in this blog from January 2024. Of all the worrying financial statistics swirling in the private rental market, figures obtained from Cornerstone Tax in January revealed mortgage repayments had hit 140% of 2022 levels. Adding to the picture was data from Simply Business. It reported that 31% of landlords saw their monthly mortgage repayments increase between 2022 and 2023.
Generally there is good news in the mortgage market. Rates have been falling since late 2023 and there have even been reductions in the cost of buy-to-let mortgages. Although this may offer a crumb of comfort for those landlords taking out their first ever mortgage, it’s not so positive for property investors who fixed their buy-to-let mortgage rate prior to September 2022.
Rates for landlords coming off of fixed-rate deals are still considerably higher now than seen a couple of years ago. Which? suggests average buy-to-let mortgages rates are now around the 5.5% mark. While down from a sky-high average of 6.79% seen in August 2023, it's distinctly more than the figure noted in February 2022, when the average buy-to-let fixed-rate mortgage was just 3.06%.
The situation facing many landlords coming off fixed-rate periods in the coming months is often described as a cliff edge. It comes at a time when the average UK rent dropped by -0.6% in January 2024, by -0.9% in December 2023 and by -0.3% in November 2023.
The effect of these cumulative decreases in rental income will do little to help landlords struggling with mortgage repayments. Landlords just about breaking even or posting a loss are two scenarios we have increasingly seen present to us at LandlordBuyer. So much so that we have written a blog addressing what landlords can do if they can afford their buy-to-let mortgage repayments.
If you’re worried about how rising mortgage repayments may affect the viability of a single buy-to-let or a portfolio, speak to LandlordBuyer about an exit strategy. You can sell any buy-to-let to us – even those with a short lease or sitting tenants – to benefit from our rapid exchange and completion service (average completion time is in the region of 42 days from receipt of legal documents). Our guaranteed sale structure shortens the time frame landlords are stuck paying unaffordable mortgage repayments.
Contact us to learn more about our cash buy-to-let purchasing service, or request a free valuation now.