Mortgage distress rocks private rental market

While inflation gentles ebbs away, there is still no escaping the new reality that is uncomfortably high mortgage rates.

Although, historically speaking, mortgage rates in the region of 5-6% are not unusual, borrowers have become accustomed to rock bottom deals in the region of 1-2%. Landlords feeling the most pain as a result of high mortgage rates are those coming off fixed-rate deals in the near future, as well as borrowers already on their lender’s standard variable rate and those on a tracker mortgage that moves in line with the Bank of England’s (BoE) interest rate.

The 3rd August 2023 saw the BoE raise the interest rate for the 14th consecutive time, with a new rate of 5.25%. Landlords looking for a crumb of comfort that rates had peaked will be disappointed, as financial experts are debating whether there will be further hikes to 5.5% or even 5.75% later this year.

As we have previously reported, a number of landlords pledged to sell buy-to-let properties if the interest rate rose above 4.5% and the team here at Open Property Group has already been helping landlords exit the market. Almost everyone involved in property is now on high alert for 21st September, when the BoE meets again to decide where the rate goes next.

In the meantime, borrowers are turning to the internet for help with unaffordable mortgage repayments. Analysis of Google search data by L&C Mortgages found searches using the term ‘mortgage help’ surged by 1,366% in one seven day period shortly after the BoE raised the interest rate to 5.25%.

Even before the latest interest rate rise, borrowers were beginning to worry. The search term ‘mortgage support’ increased in usage by 213% between mid-July and mid-August, while Google searches for ‘remortgage’ had increased by 106% during the same timeframe. Unsurprisingly, more people are searching ‘when will interest rates go down’ – a search term that has skyrocketed by 487%.

The BoE itself has said almost a million borrowers can expect their mortgage payments to increase by up to £500 a month by 2026 and although many landlords are passing on the extra mortgage repayment costs on to tenants in the form of higher monthly rents, it’s a strategy that’s not palatable for everyone.

An article published by consumer group Which? in late May 2023, using data from UK Finance, revealed property repossessions were up 50% in the first quarter of this year as borrowers struggled to afford their repayments. Of the 1,250 homes that were repossessed during that three month period, 750 of those repossessions were down to missed mortgage payments. Worryingly, 410 repossessions were mortgaged buy-to-let properties – a figure that has increased by 28% since the last quarter of 2022.

The UK Finance figures also showed that the number of buy-to-let mortgages in arrears is growing at a faster rate than residential mortgages. In the second quarter of 2023, there were 8,980 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance – a figure that is 28% greater than in the previous quarter.

Within that total, there were 4,810 buy-to-let mortgages in what is classed as ‘light arrears’ (landlords owing between 2.5% and 5% of the outstanding balance). This figure was 41% greater than recorded in the previous quarter.

The mass of financial figures available points to an alarming trend of unaffordability among property investors, who can now find better returns with some savings accounts. Agent Hamptons has already publicly declared that more landlords are now selling up due to rising mortgage rates and falling house prices.

For landlords who are on the cusp of finding they can’t meet their mortgage repayments, the race is on to sell buy-to-lets before mortgage repayments cripple them further and their property investment loses value in a cooling market.

Open Property Group can help landlords who find themselves in one of the following predicaments:-

• Landlords facing repossession: landlords who have fallen behind with their mortgage repayments can stop house repossession by selling quickly and directly to Open Property Group. In most repossession cases, we can exchange contracts within 24 hours from receipt of the legal documents, ensuring the repossession is cancelled. The cash we pay the seller can be used to pay off the mortgage debt.
• Landlords with a high mortgage rate: landlords who will imminently move to lender’s standard variable rate or to a new home loan that’s unaffordable can limit the number of days they are paying a high rate of interest by opting for an express cash sale to Open Property Group. When we buy a property from a landlord, our average timeframe to exchange is just 29 days. From receipt of the legal documents, we reach completion in an average of 42 days, which reduces how may repayments have to be made at a high rate of interest.
• Landlords in an area where house prices are falling: buy-to-let owners in an area where house prices are falling can sell to Open Property Group to minimise the length of time their property is for sale and losing value. While risking the open market could see a property languish online for months, we can make an almost instant cash offer and, quite frequently, have the sale wrapped up within a month.

If you find yourself in any sort of financial distress and would like to explore selling your buy-to-let, please contact Open Property Group today.