How is the buy-to-let mortgage market performing?

UK Finance has published its mortgage arrears and possessions update for Q2 2023, which revealed there were 8,980 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, up 28% on the previous quarter.

With this in mind, Mortgage Introducer reached out to brokers to find out how the BTL market is performing.

Buy-to-let market struggles

Joe Stallard (pictured left), director and adviser at House and Holiday Home Mortgages, said the struggle continues for landlords.

“In fact, it is downright brutal; though UK Finance’s numbers are still relatively small, the rise in properties being taken into possession is a worrying sign, even if not entirely surprising given recent legislation changes that have come down hard on landlords,” he said.

Stallard believes ‘punishing landlords’ harshly through the changes reduces the amount of good quality rental property available, which in turn increases rents and competition for those that do not want to, or cannot yet, buy.

Lewis Shaw (pictured right), owner and mortgage expert at Shaw Financial Services, said the latest data from UK Finance is a sign of the times, and he believes it will get worse throughout 2024 as more than 1.4 million households face remortgaging.

“You cannot jack up interest rates at the speed we have seen over the past 18 months and not cause people to sink below the waterline,” he said.

Shaw said, thankfully, the Mortgage Charter will give some light relief for owner-occupiers, however he believes the buy-to-let market seems to be ‘dead in the water already.’

Unpaid rents

Riz Malik, founder and director at R3 Mortgages, said an increasing number of buy-to-let landlords are encountering serious financial challenges.

Beyond escalating borrowing expenses, Malik said that unpaid rents are a significant factor in the economic difficulties facing landlords.

“Moreover, when landlords aim to offload their properties, the timing could not be less favourable in recent memory; even at auctions, properties remain unsold,” he said.

Regrettably, Malik said the Mortgage Charter offers no assistance to these landlords, despite the essential role they play in supplying housing in the private rental market.

“As such, the surge in arrears was bound to happen, and the outlook for many landlords is bleak,” he added.

Ranald Mitchell, director at Charwin Private Clients, agreed with Malik that landlords are particularly exposed as, for the most part, they rely on rent receipts to meet their mortgage payments.

“Tenants are feeling the pain every step of the way amid the cost-of-living crisis and rent increases to meet landlords’ mortgage costs,” he added.

Mitchell believes this is the tip of the iceberg, and he is expecting things to get worse before they get better. Landlords would be well served, he said, to contact their tenants to discuss their situations and keep communications open should things worsen.

“Mortgage arrears appear to be rising sharply, which again is unsurprising; sadly, I feel this number will continue to rise as mortgage holders fail to adjust, plan or are simply unable to cope with the costs of living in their current homes,” Mitchell said.

For those about to have their fixed rates expire, or who are due to remortgage next year, Mitchell said they must get a budget planner out, and look at their income and expenditure right away.

How is the buy-to-let market performing amid current conditions across the industry? Let us know in the comment section below.