February 8, 2024 11:22 am

Insert Lead Generation
Nikka Sulton

Why Are Buy-To-Let Landlords Selling Up? As inflation gently ebbs away, a new reality emerges with uncomfortably high mortgage rates. While historical norms include rates around 5-6%, borrowers have grown accustomed to the luxury of rock-bottom deals hovering in the 1-2% range. This shift poses a particular challenge for landlords, especially those approaching the end of fixed-rate deals, individuals on their lender’s standard variable rate, and those with tracker mortgages aligned with the Bank of England’s interest rate.

On the 3rd of August 2023, the Bank of England marked its 14th consecutive interest rate hike, reaching a new rate of 5.25%. Despite the anticipation of a peak, landlords seeking relief may find disappointment as financial experts engage in debates over the possibility of further increases, projecting figures of 5.5% or even 5.75% later in the year. This ongoing surge in mortgage rates signals a critical juncture, prompting borrowers and landlords alike to reassess their financial strategies in the face of evolving economic conditions.

Several landlords vowed to sell their buy-to-let properties if interest rates surpassed 4.5%, prompting assistance from Open Property Group in exiting the market. The upcoming Bank of England meeting on September 21 has heightened anticipation across the property sector regarding future rate decisions.

Amidst rising interest rates, borrowers are increasingly seeking assistance online for managing mortgage repayments. Analysis by L&C Mortgages revealed a significant surge in Google searches for ‘mortgage help,’ escalating by 1,366% within a week following the interest rate hike to 5.25%.

Even prior to the recent rate increase, borrowers expressed concerns, evidenced by a 213% surge in searches for ‘mortgage support’ and a 106% increase in ‘remortgage’ searches between mid-July and mid-August. Furthermore, searches for ‘when will interest rates go down’ soared by 487%.

The Bank of England predicts nearly a million borrowers could see their mortgage payments rise by up to £500 per month by 2026. While some landlords opt to pass on additional costs to tenants through higher rents, this strategy faces challenges, highlighting the complexities of navigating the evolving landscape of mortgage affordability.

A May 2023 article from consumer group Which? utilizing data from UK Finance highlighted a concerning trend with a 50% increase in property repossessions in the first quarter. Out of the 1,250 homes repossessed, 750 were attributed to missed mortgage payments, with an alarming 410 repossessions linked to mortgaged buy-to-let properties—a 28% rise from Q4 2022.

The figures from UK Finance underscored the accelerated growth of buy-to-let mortgages in arrears compared to residential mortgages. In Q2 2023, the number of buy-to-let mortgages in arrears, exceeding 2.5% of the outstanding balance, reached 8,980, marking a 28% increase from the previous quarter. These statistics reveal the financial challenges faced by property owners, emphasizing the urgency for proactive measures to address mortgage repayment issues in the evolving market.

Within the total mentioned, 4,810 buy-to-let mortgages fell into the category of ‘light arrears’ (landlords owing between 2.5% and 5% of the outstanding balance). This figure represents a 41% increase from the previous quarter, indicating a significant rise in financial strain among property investors.

The surge in these figures highlights a concerning pattern of unaffordability among property investors, prompting some to explore alternative investment options such as savings accounts. Public statements from industry players, like Hamptons, further confirm a growing trend of landlords selling properties amidst rising mortgage rates and declining house prices.

For landlords on the verge of struggling with mortgage repayments, there is a palpable urgency to sell buy-to-lets before financial pressures intensify and property values experience a decline in a cooling market. This race against time reflects the challenging landscape faced by property investors navigating the impact of rising mortgage rates and market shifts.


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