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More buy-to-let mortgages are in arrears as interest rates soar

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The number of landlords who are falling behind with their mortgage repayments jumped in the second quarter of 2023 as interest rates increased. If you have a buy-to-let mortgage, read on to discover more and the steps you could take to balance your outgoings.

To tackle high inflation, the Bank of England has increased its base interest rate over the last two years. It’s had a direct effect on the cost of borrowing, including mortgages.

Data from UK Finance indicates the rising rates are hitting landlords hard.

In the second quarter of 2023, almost 9,000 buy-to-let mortgages were in arrears of 2.5% or more of the outstanding balance. The number increased by 28% when compared to the previous quarter.

Even if you’re managing your property’s outgoings, the income it provides may have fallen.

A report in MoneyWeek suggests an average buy-to-let landlord taking out a two-year fixed-rate mortgage in June 2023 could expect returns of almost £3,000 a year.

However, a landlord taking out the same mortgage a year earlier could expect returns of more than £7,300 a year.

So, with mortgage costs rising, what are your options?

1. Review your mortgage

Rising interest rates are a key reason some landlords are struggling to meet mortgage repayments.

According to Which?, the average fixed-rate deal at the start of September 2022 was 4.67%. A year later, it had increased to 6.54%.

While the average interest rate has increased, that doesn’t mean it’s impossible to secure a more competitive deal. It might be worth reviewing your existing mortgage deal and comparing it to others available on the market.

We can offer support if you’d like to assess if you could cut costs by switching your mortgage. 

2. Consider increasing the property’s rent

Data from Zoopla indicates increasing rent is a step many landlords have already taken. In the 12 months to September 2023, the average rent increased by £110 a month.

While increasing the rent in line with rising mortgage repayments may seem like a straightforward solution, you should assess your local market. Pricing your property above the market average could lead to challenges in finding suitable tenants.

The Zoopla research also noted that rental affordability is at its worst for a decade at more than 28% of average earnings. Increasing rent sharply could lead to your property becoming empty.

3. Take steps to minimise void periods

A void period – when your property isn’t bringing in an income – can be difficult at any time. It can be especially challenging to manage if your mortgage costs have increased.

There are steps you could take to minimise the chance of a void period, such as establishing a good relationship with tenants, investing in the property to make it attractive, and offering tenants longer contracts.

You might also want to consider insurance that would cover a void period to provide peace of mind.

4. Weigh up if a buy-to-let property is still right for you

If your buy-to-let is no longer providing the profit you want, selling the property is an option you may want to consider.

According to the Guardian, a growing number of landlords have sold up as mortgage costs rise. The report suggests landlords sold 25,000 properties between April and May 2023, compared to 22,000 in the previous two months.

It can be a difficult decision to make, and it’s important to weigh up the pros and cons to understand what may be right for you.

Rising interest rates have slowed the property market too. Property prices have started to decline as prospective buyers have struggled to secure mortgages. So, if you’re thinking about selling your property, keep in mind that the offers you receive could be lower than you expect.

Get in touch to talk about your buy-to-let mortgage

If you’re searching for a buy-to-let mortgage or would like to understand if you could benefit from switching providers, please contact us. We could help you search the market for a mortgage that suits your needs and provide guidance throughout the application process.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

More buy-to-let mortgages are in arrears as interest rates soar

Commercial mortgages and some buy-to-let mortgages are not regulated by the Financial Conduct Authority.

Approved by The Openwork Partnership on 09/10/2023.