Credit, Collections & Insolvency News
Soaring borrowing costs and strict lending rules have driven down the value of buy-to-let (BTL) mortgages to the lowest level in almost three decades according to latest UK Finance data.
The reports showed that the number of outstanding mortgages to landlords had fallen for the first time since 1996, when bespoke loans for property investors were first introduced. In the first three months of 2024, outstanding buy-to-let mortgages were down to 1,980,000 from 2,039,000 a year earlier – the first-ever annual decline.
The number of buy-to-let mortgage deals granted in the UK has dropped by half, falling from 25,280 to 12,422. This decline is attributed to rapidly increasing interest rates and stricter affordability tests. The stamp duty surcharge on second properties and the removal of higher-rate income tax relief on mortgage payments for rental properties have also made the landlord’s role less appealing. Landlords owning just one property make up a third of the BTL market, while 10% of BTL mortgages are held by landlords operating as companies. Despite an increase in rents, rising costs have put a squeeze on landlords’ profits.
At the end of 2023, there were 13,570 BTL mortgages in arrears, but this number remained flat in Q1 2024 and is still just 0.68 per cent of all BTL mortgages. While this is a 93 per cent increase on the same quarter a year ago, it’s still just 0.68 per cent of all BTL mortgages and the number hasn’t increased since the last quarter of last year.
The proportion of BTL mortgages in arrears has risen more than among residential mortgage holders because most BTL mortgages are interest-only. As such, they’re more affected by higher interest rates.
There were also 600 BTL possessions during the first quarter of this year, compared with 430 in the same quarter a year ago. While this is a 40 per cent increase, it’s still below the number before the pandemic.
The increases are mainly due to the number or possessions cases seen by the courts returning to normal levels, following the disruption of the pandemic years.
James Tatch, Head of Analytics at UK Finance, said “A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.
“However, given the new government is committed to abolishing Section 21 ‘no fault’ eviction notices, it must make sure that responsible landlords have other options for when they have legitimate reasons to take their property back.
“Without more unexpected negative shocks, strong rental demand and strong lending standards could mean the buy-to-let sector emerges from last year’s downturn sooner than previously expected. Also, that further rises in arrears are limited.
“Lenders continue to offer a range of support to anyone who’s worried about their finances, with teams of trained experts ready to help. If you are struggling, please reach out to your lender as soon as possible to discuss the support options available.”