Rising interest rates are piling the pressure on landlords and leaving some as mortgage prisoners, according to one mortgage expert.
With most fixed rates now well over 6%, the interest costs can have tripled since some landlords’ last mortgage was taken, causing a perfect storm for the PRS, says Angus Stewart, CEO of buy-to-let mortgage broker Property Master.
“While some landlords seek to increase rent, many tell us that their tenants cannot afford an increase,” he says
“As a result, many landlords are considering whether to sell one or more of their properties, which may have the impact of making many tenants homeless,” explains Stewart.
Property Master’s customer research discovered that 40% of landlords have either recently sold or are considering selling one or more properties.
If this came to fruition, the impact would be very significant on tenants and the overall housing market, he adds.
Minimal impact
Changes by George Osborne (pictured) to the rules on interest rate relief in 2015 had minimal impact when interest rates were low, according to Stewart, but they are now seriously impacting the profitability of a landlord’s business.
“Coupled with much tougher affordability rules it means that many landlords cannot re-mortgage at current rent levels, leaving them on the lender’s standard variable rates, some of which are approaching 10%,” he adds.
“They are mortgage prisoners, and the logical option is to sell or substantially increase rent.”
He says: “Recent press talk has been of helping homeowners with the increasing costs of mortgages but it’s important that the government doesn’t ignore landlords who are a key source of housing, with five million households.”
Read more: Complete tax guide for landlords 2023/24
BTL is unviable at current IR.
LL need to massively deliberately.
Apparently 95% of LL own two BTL properties.
Some will be mortgage free.
But if both mortgaged it makes sense to sell one and reduce leverage if possible to 30%.
This will ensble rents to be increased but still affordable for tenants.
The tenants of the other property will be homeless.
There is no doubt that the supposed IR norm will mean the days of leverage at 75% are long gone.
LL need to think of 40% as the maximum LTV.
This will give LL future resilience.
LL reducing the leverage on reduced numbers of properties makes perfect business sense.
It does however mean the PRS will substantially reduce.
Consider the 95% of LL with two properties.
If they sold one they could reduce the leverage and probably survive.
Surely better to have one property which is viable rather than 2 unviable ones.
Of course the other thing which makes mortgaged sole traders more viable is that by reducing leverage the penal effects of S24 is much mitigated.
So consider that reduction means the Treasury receives far less in S24 taxes.
Got to be a good thing!!
S24 etc might have forced LL to get rid of one property but most LL will still be in the game with one far more resilient property for which they will be able to charge far higher rents.
Clearly double CG won’t occur but I DONT believe LL need to bother about that for the next 15 years.
Yield and resilience will be the key to survival.
We could have a two term Labour Govt…………..God help us!!
BTL lenders will over the coming years see a drastic reduction in BTL business.
Only a fool would leverage in excess of 50% LTV.
High leverage is great when IR are low.
But it all goes Pete Tong when they increase as indeed many unwise LL are finding out!!
Expertly said as always Paul. Thank you for such clear advice. I’ve just sold 2 out of my four well before remortgaging will make them unprofitable. Yes it’s horrific for tenants but we simply have no choice . I wish the press would illustrate this so tenants realize it’s our of our hands!!!!!
I too have sold 2 of my 4.
No one can sustain 13 IR rises, on the bounce and I have turned the last one into an Airbnb. BTL is unviable and something like 380000 LL have thrown the towel in.
Some sympathy for the tenants forced to find alternative.( probably dearer accoodation )but they are now Shelter and the Government’s Problem.
Only too happy to attack LL but the PRS was filling a Huge gap , in thr housing stock which can only be filled by a massive social housing building programme. Good luck with that!
Govs have been playing games with the population for generations. Over time, everyone gets a kicking in one form or another, as the current placeholders steer policy in the way they have been told by their puppet masters and groups are perpetually pitted against one another.
Govs have no power (and no money – its all the public’s) and voting is a charade. Everyone should stop doing it.
So, my advice is to do what I did. Sell up, leave the UK and put your money and energy elsewhere were you are welcomed and you are not treated as a scourge.
Once the UK’s PRS is fully destroyed and the BTR operators start to experience lots of trouble (which they will), because they won’t do as good a job as small private landlords, the calamity of demonising hundreds of thousands of private landlords and forcing them out of the market will be all out in the open, with millions of people sleeping in the streets, or in packed out emergency shelters and/or hospitals, churches, etc.
Crime will spiral beyond any form of control (because there will be no police left) and civil war will be on the horizon.
Yet no politician will ever be held accountable because this is what the UK is all about – screw the public.