The Struggle of Landlords: Increasing Repossessions and Mortgage Woes

Introduction:

In recent times, landlords in the United Kingdom have been facing a growing crisis. As mortgage lenders raise their rates, an increasing number of landlords find themselves in financial distress, with their properties at risk of repossession. This predicament has resulted in landlords being disproportionately affected compared to live-in homeowners. The buy-to-let market, comprising 19% of all mortgaged homes in England, witnessed landlords accounting for 35% of repossessions in the first quarter of this year. This article delves into the challenges faced by landlords, explores the reasons behind the rise in repossessions, and discusses potential solutions to alleviate their plight.

Landlords Hit Harder Than Homeowners:

According to UK Finance, during the first three months of the year, 35% of all repossessed properties belonged to landlords, while only a 5% increase in arrears was seen among live-in homeowners. Landlords facing difficulties in remortgaging are being forced onto their lender’s Standard Variable Rate (SVR), which is significantly more expensive than fixed-rate deals. Uswitch reports that the average SVR stands at 8.45%. However, landlords must be prepared to afford future interest rates of 9% to 10% when seeking to remortgage. This becomes unattainable for many landlords, leaving them with two options: increasing their tenants’ rents or facing the loss of their property through forced sale or repossession.

Disproportionate Impact on Landlords:

Despite buy-to-let properties making up only 19% of mortgaged homes, landlords faced 35% of all repossessions between January and March. During the same period, live-in homeowners accounted for 65% of repossessions, despite making up 81% of mortgaged homes. This disparity highlights the severity of the situation faced by landlords. Many are resorting to serving Section 21 notices to tenants in order to sell their properties. Rising mortgage costs have placed landlords in a difficult position, with one example of a landlord seeing their buy-to-let mortgage increase from £350 to £1,100 per month. Such financial burdens force landlords to raise rents, exacerbating the already challenging cost of living crisis.

Interest-Only Mortgages and Limited Options:

The majority of buy-to-let mortgages held by landlords are interest-only, making them particularly vulnerable to rising rates. Landlords who find their fixed-rate deals expiring often struggle to cover the stress test for a new fixed mortgage with an interest rate exceeding 6%. Many lenders do not offer rate switches for existing buy-to-let customers, further limiting landlords’ options. Consequently, landlords are left with the choice of either selling their properties or increasing rents, as lenders effectively force their hand without flexibility in rate switches.

Potential Solutions and Urgent Action:

The National Residential Landlords Association (NRLA) is advocating for the reintroduction of mortgage interest relief and the unfreezing of housing benefit rates. These measures aim to address the difficulties faced by landlords and prevent a decline in the private rented sector. However, landlords find themselves trapped as some specialist buy-to-let lenders, like Landbay, have not offered product switches for a while. Building societies, including Newcastle BS, have also withdrawn this option due to market volatility. The absence of affordable options leaves landlords either stuck or compelled to sell their properties.

Conclusion:

Landlords in the United Kingdom are grappling with mounting challenges as mortgage lenders increase rates and impose financial strain. The higher rate of repossessions among landlords compared to live-in homeowners underscores the severity of the issue. Landlords are caught in a mortgage trap, with limited options and increasing financial burdens. Urgent action is required to support the private rented sector, including the reintroduction of mortgage interest relief and adjustments to housing benefit rates. These measures would provide much-needed relief for landlords and help maintain a thriving rental market for tenants. Without intervention, the consequences may include a reduction in the availability of high-quality rental properties and increased hardships for renters.