Buy-to-let cases of overdue payments have doubled within a year. The surge of 100% in these instances has been observed as more property owners face financial strain due to the escalating mortgage rates.
Specialist property lending experts, Octane Capital, conducted research analyzing quarterly arrears cases where mortgage balances were at least 2.5% in arrears. The data, covering the period from the beginning of 2019 until now, revealed a striking increase.
In the third quarter of 2023, arrears cases peaked at a record high of 11,540, marking a 100.3% surge from the corresponding period in 2022, when the count stood at only 5,760.
The trend shows a continuous rise in arrears cases for four consecutive quarters, with the latest quarter indicating a 28.8% increase between the second and third quarters of 2023.
Challenging times have finally impacted landlords. While many managed to mitigate the impact of rising mortgage rates and energy expenses, not all investors could shield themselves—especially those in regions with a high rental supply.
The percentage of buy-to-let loans in arrears rose by 0.29% year-on-year, doubling from 0.28% in Q3 2022 to 0.57% in Q3 2023.
There's a silver lining for investors in the form of the Bank of England base rate, which held steady at 5.25% since August 2023 after increasing from 0.1% in December 2021. It appears further substantial increases are unlikely, as the inflation rate dropped to 4.6% in October. This signals the Bank's success in controlling inflation through the higher base rate.
This increased confidence might trickle down to mortgage lenders, who may begin reducing their rates to stay competitive in the market.
While buy-to-let difficulties intensify, residential homeowners still exhibit higher probabilities of being in mortgage arrears, with 1.0% of residential loans in arrears in Q3 compared to 0.57% for buy-to-let properties.
However, residential arrears cases have decreased by -1.8% year-on-year, indicating a narrowing gap between struggling buy-to-let landlords and residential property owners.
Jonathan Samuels, CEO of Octane Capital, remarked, “The challenging conditions of 2023 have finally impacted landlords, as arrears cases have more than doubled year-on-year. Despite landlords generally having better resilience than homeowners during tough times, their ability to absorb rising costs through increased rents largely depends on regional market conditions.
"Raising rents comes with its challenges as it might alienate existing tenants and lead to vacancy periods, nullifying any potential benefits.
"The positive news for struggling landlords is that the period of escalating interest rates seems to have ended, with steadier inflation reducing the need for the Bank of England to raise the base rate further. This could result in increasingly competitive mortgage rates."
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