Landlord mortgage arrears outstrip home owners’ as costs squeeze profitability

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Landlords’ arrears are growing at a faster rate than homeowners’, according to new research that suggests fewer investors are being shielded from economic headwinds.

Octane Capital found that buy-to-let arrears of more than 2.5% of the loan amount have risen by 42% in four years, from 4,930 in Q1 2019 to 7,030 in Q1 2023, accounting for 0.34% of total outstanding buy-to-let loans.

Similar arrears for homeowners have dropped by -8.6%, from 83,870 in 2019 to 76,630 this year, accounting for 0.87% of total homeowner loans outstanding.

While arrears are far from out of control, many mortgage holders are likely to struggle when they re-mortgage, with typical five-year fixed mortgage rates now climbing above 6%.

But Chancellor Jeremy Hunt’s mortgage charter – allowing anyone worried about their mortgage repayments to switch to an interest-only mortgage for six months without impacting their credit score – doesn’t cover landlords.

High inflation

CEO Jonathan Samuels (pictured) says mortgage rates and high inflation are stretching affordability to the limit, with landlords unable to entirely recoup their lost income in the form of higher rents.

But the research suggests levels of arrears are in no way out of control, says Samuels.

He adds: “The Chancellor’s mortgage forbearance measures are designed to reassure people who are worried about the impact of rising rates, and it’s welcome these measures have been introduced before the horse has bolted – cases of arrears need to be tackled before people fall into trouble.

“We’d still recommend mortgage holders to keep paying their loans as normal unless they are in need of emergency action, as measures like interest-only loans will only result in higher payments down the line to compensate.”

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