Almost a quarter of a million buy-to-let landlords are facing losses

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According to the Daily Telegraph, around 225,000 landlords will be in a loss making situation following the latest jump in refinancing costs.

It is estimated that these landlords will be in the red when they come to refinance as mortgage rates are climbing towards upwards of 7 per cent for the first time in 25 years.

Moneyfact’s figures show that the average two-year buy-to-let mortgage deal was at 6.69 per cent last week, while five-year deals could be had for around 6.52pc.

The Bank of England and inflation

The Bank of England’s Monetary Policy Committee (MPC) has a brief from Government to set monetary policy to meet the 2% inflation target, and to meet it in a way that helps to sustain growth and employment.

At the last meeting on 21 June 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 5%. It is expected the next meeting on 3 August 2023 will see a further rise.

[Source: Bank of England]

If inflation continues to increase, the bank rate is likely to continue rising, as does the price of everything else, including mortgage rates. Wage and price demands fuel more inflation and so the vicious circle continues.

The Bank’s aim is to bring inflation under control using one of the limited number of tools at its disposal, interest rates. The problem for mortgage holders it that the effects of this falls directly on them.

In the financial world, mortgage rates depend on the demand for mortgage backed bonds. Inflation reduces the demand for these mortgage-backed securities or bonds. As demand drops, the prices of mortgage-backed securities fall. That results in higher interest rates for all mortgage types.

Mortgage-backed securities are securities formed by pooling mortgages together. The investor who buys a mortgage-backed security is essentially lending money to home buyers. During the subprime mortgage meltdown of 2007-2008, it became apparent to everyone that a mortgage-backed security is only as sound as the mortgages that are bundled in it.

Forecasters are now predicting that in order to kill off inflation the Bank of England is set to raise the base rate again at future meetings, eventually to a 25-year high of 6.25pc by early in the new year, which will almost certainly force mortgage lenders to increase their mortgage rates above 7 per cent.

Home ownership

More people now own their homes outright than have a mortgage or are renting. The latest available figures show that around 33 per cent of dwellings were owned outright in England in 2021, that’s up from just over 30 per cent in 2011.

Another 28 per cent of properties were owned with a mortgage or loan, that’s down four percentage points on a decade earlier, and 20 per cent are privately rented, that figure is up 3.7 per cent according to the Office for National Statistics.

Homes in the social rented sector were around 17 per cent while of those it is estimated that 226,930 buy-to-let homes across the UK (11pc of all mortgaged rentals) are likely to be unprofitable due to the rise in mortgage rates.

According to Money.co.uk it is estimated that around 60% of all landlords fund at least part of their portfolio through a buy-to-let mortgage, while 41 per cent own outright, 35 per cent hold all of their properties on a mortgage and 24 per cent hold some of their portfolio on a mortgage. It has been estimated that around 60 per cent of landlords own a single property, while over half of buy-to-let landlords own more than one.

[Source: ONS]

According to Uswitch the UK buy-to-let market had:

• £8.5 billion worth of buy-to-let properties purchased by UK landlords in Q1 2022.
• In 2022, more than 211,000 buy-to-let mortgages were approved by UK lenders, and occupied 13.6% of total mortgage lending for the year.
• Consumer buy-to-let mortgages in 2022 are valued at approximately £955 billion, with buy-to-let mortgage advances worth £41.8 billion.
• There are currently around 2.74 million landlords in the UK, with more than two-thirds (68%) over the age of 55.
• Milton Keynes has seen the greatest growth in buy-to-let properties with a 667% increase between 2021-22.
• The average UK landlord has eight properties in their portfolio, generating a gross annual rental income of around £61,000 per property.

Financial Stability

A recent report buy the Bank of England, The Financial Stability Report July 2023 says that the pressure put on buy-to-let mortgage borrowers by increases in mortgage interest payments would lead to (1) them either selling up, further adding to the rental housing shortage, and putting downward pressure on house prices, or (2) alternatively, they may be asking their tenants to pay more in rent.

The overall number of mortgages in arrears, says the report, increased slightly over the first quarter of 2023 but has remained low by historical standards, though “It will take time for the full impact of higher interest rates to come through.”

Head of research at property agents Hamptons, Aneisha Beveridge, told The Daily telegraph:

“We know that nearly 70pc of landlords in England own a home with a mortgage. That’s a much higher proportion than among owner-occupiers. So landlords are more at risk to the new kind of higher rate environment than the average household.

“The highest-leveraged landlords who bought in the last couple of years are most at risk. They are the ones who have taken equity out of their properties or bought a new buy-to-let in the last couple of years,” Ms Beveridge said.

“We haven’t seen as much of an acceleration in landlords selling off as we expected, as rates have risen over the last six, seven, eight months.”

This has led to many property investors selling up in the more expensive areas such as in London and the South-east, where prices are high and yields low, for other parts of the UK where buy-to-lets can be picked up for much lower prices, and consequently returns are higher. That’s according to Kevin Roberts of Legal & General who told the daily Telegraph:

“They are moving their portfolios to where the yield is. There are still better yields in the Northwest or the north of England or other parts of the UK. Airbnb and holiday homes are still massively searched for on our tools”

An additional factor having an impact on the rental market at the moment is the Government’s plan to abolish the shorthold tenancy and Section 21 evictions, for some landlords this is a worry and has been the last straw.

These statistics shown above hold out a rather dismal prospect for tenants looking for accommodation. Rents are higher than ever for new tenancies, and these tenancies are hard to find when some landlords are offloading their buy-to-let portfolios. All the property portals, including Zoopla, Rightmove and Spare Room are reporting substantial excess demand over rental supply.

View Full Article: Almost a quarter of a million buy-to-let landlords are facing losses

NEW: Big London borough brings in tighter HMO conversion rules for landlords

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Landlords in one of London’s biggest boroughs now need planning permission to convert family homes into HMOs for three to six tenants.

After a year-long pilot and consultation with residents, the London Borough of Hounslow (main picture) has made its borough-wide Article 4 Direction permanent which the council says will address residents’ increasing concerns about the negative impact of HMOs in local communities. The direction will work alongside the council’s additional licensing scheme.

Hounslow says many community groups and residents’ association have highlighted how HMOs have been blighted by an increased level of anti-social behaviour, fly-tipping and noise.

A report explains: “Overall, the evidence indicated that the level of HMO conversions had reached the point where it was”.causing detrimental impact on local amenity and wellbeing”.

It adds that the Article 4 Direction does not mean it won’t be possible to carry out conversions of family houses to small HMOs.

“However, it will enable the council to manage the impact of these conversions,” the report says.

The authority promises to monitor the direction to ensure it is achieving its objectives.

“The framework will be regularly reviewed to assess the effectiveness of the approach and whether any further update to the policy and SPD framework is required. The outcomes of the direction on any specific groups, including the housing outcomes, will also be monitored through the HMO licensing regime.”

Detrimental

Councillor Tom Bruce (pictured), cabinet member for regeneration and development, says: “It is clear that many HMOs are having detrimental impact on the local community and this measure becoming permanent will ensure thorough oversight – protecting both the tenants in HMOs and the communities that surround them.”

He adds: “I would encourage residents to get in touch if they have a planning enforcement query related to an HMO.”

View Full Article: NEW: Big London borough brings in tighter HMO conversion rules for landlords

LATEST: Mortgage problems drive surge in portfolio landlords selling up

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Landlords with portfolios of 20 properties or more are making up the bulk of enquiries about selling to the Landlord Sales Agency.

Despite reports that smaller landlords with one or two properties will be hardest hit by current market conditions, the firm has one landlord client with 50 houses that he can’t refinance because no lenders will lend, and another with 40 properties and a £6,000 per month mortgage deficit. Their only option is to sell.

Another landlord recently sold her 23-strong portfolio in Warrington through the agency, reporting that with a total value of £2.7 million, rising costs and interest rates means she is subsidising others to live in her properties.

Although the Landlord Sales Agency is averaging 240 enquiries a month from landlords, 75% of their agreed sales over the last year have been to other landlords who are keeping the existing tenants.

Rent rises

MD David Coughlin (pictured) says there is such a critical need for rental properties in this country, that he and his team are working with landlords to try and keep properties in the PRS by selling tenanted properties.

The firm has helped tenants pay their current rents, paid off arrears, paid for tenants to relocate and in some cases, even paid tenants’ rent in advance for the next landlord who takes on the property. For more challenging cases, they have built relationships with local councils who can support tenants’ rent payments, clear outstanding funds and even pay off legal costs.

Coughlin adds: “Tenants are having to accept rent rises, and in 50% of the sales we have agreed, the tenants have opted to stay with a higher rent because they know fierce competition for rental properties could see them paying even more elsewhere.”

Read more about rent rises.

View Full Article: LATEST: Mortgage problems drive surge in portfolio landlords selling up

Housing chief tries to reassure landlords over looming eviction changes

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Government officials have reassured private landlords that judges will be able to consider a wider range of behaviours before using their judicial discretion in ASB eviction cases.

Giving evidence to the Levelling Up Housing and Communities Committee into the Renters Reform Bill, DLUHC deputy director Guy Horsington (main picture) explained how the new wider parameters for evicting anti-social tenants would help landlords.

“We’ve heard that landlords find it hard sometimes to evidence anti-social behaviour and therefore by making the change we said we would – to expand it so that it brings in a wider set of behaviours – while maintaining judicial discretion, that should help landlords who are genuinely trying to deal with a problem tenant,” he told MPs.

anti-social behaviour

“We are taking measures to help landlords prove genuine anti-social behaviour that is discretionary, and we’re also maintaining our mandatory ASB grounds when there has been a proven criminal offence,” added Horsington.

Housing Minister Rachel Maclean (pictured) added that the department would provide guidance for the justice system and it would be up to the judge to make a decision.

She was also grilled over the impact of increasing Airbnb properties in London while councils reported that family housing in the PRS had dropped rapidly. 

She told MPs it didn’t have hard evidence of landlords leaving the market.

“We believe the market is still growing – we’re not aware of any more significant consequences,” said Maclean. “There are huge pressures on housing and a supply and demand issue, but I don’t believe that’s got anything to do with the very proportionate and modest reforms we are making to remove section 21.”

She added that the timetable for the Bill’s second reading was still on track.

View Full Article: Housing chief tries to reassure landlords over looming eviction changes

Incorporation Feasibility Analysis For Landlords

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10’s if not 100’s of thousands of landlords still haven’t incorporated their rental property business or even taken specialist advice on the feasibility of doing so.

We struggle to understand this given that we offer a service to consider feasibility for a fixed fee of just £400.

View Full Article: Incorporation Feasibility Analysis For Landlords

Rents soar as agents report rising tenant demand but landlord slump

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The Government’s housing policies are coming home to roost as tenant demand continues to soar but the number of landlords advertising new properties to rent plummets, it has been revealed.

RICS says that during June it found significantly more members (a net balance increase of +40%) reporting an increase in tenant demand (see graph) while the net balance of those receiving new landlord instruction sank by 36%.

An even greater number of agents told RICS that they expect rents to rise as the imbalance between supply and demand continues through the summer.

Eoin Hill of SDL Surveying in Newbury reports: “Rents for lettings are still increasing due to lack of stock, plus some landlords are quitting due to looming EPC challenges”.

David Conway of Harrow firm David Conway & Co adds: “Government anti-landlord policies will result in fewer rentals, but with increased rents.”

Soaring

Ben Twomey (pictured), Chief Executive, Generation Rent, says: “Soaring rents since the pandemic are now having a knock-on effect on the number of homes being advertised to rent.

“Many tenants might want to move but simply cannot because the rent on a new tenancy is now far higher than what they are currently paying.

“That means fewer properties are becoming available and those that do are being snapped up more quickly by tenants who do need to move. That is keeping rents high and unaffordable for many.

“To bring rents back within reach of people on ordinary incomes, the government needs to build more homes in the places people want to live. That must also include many more social homes so that people on low incomes can live near their workplaces and families.”

Read the RICS report in full.

View Full Article: Rents soar as agents report rising tenant demand but landlord slump

Bank of England sounds house price crash warning if landlords sell-up

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The Bank of England (BoE) is warning that higher buy to let mortgage rates could see landlords sell up and leave the private rented sector – or push rents up for tenants.

In its latest Financial Stability Report

View Full Article: Bank of England sounds house price crash warning if landlords sell-up