According to The Mortgage Lender (TML), nearly half of the UK’s landlords who have a mortgage are on the verge of a crucial financial crossroads. 40% of these landlords are expected to renew their mortgage agreements within the next 12 months. This situation potentially affects thousands of tenants and property owners across the country.
Chris Kirby from The Mortgage Lender outlines the situation, indicating a crunch point for mortgaged landlords. Out of these, a considerable portion are caught in the cycle of decision-making, determining whether to stick with their current rates or venture into new agreements. Specifically, 40% of residential landlords with mortgages, including fixed, tracker, or discount types, are due for renewal between seven months to a year.
Moreover, another 41% will face this decision in the following two to three years, indicating a sustained period of financial recalibrations in the rental sector.
The Financial Impact
Landlords are bracing for impact, with many expecting their monthly mortgage payments to surge by an average of £615. This anticipated increase comes at a time when landlords are predominantly locked into five-year fixed-rate deals (42%) or two-year agreements (21%). A notable 15% are on Standard Variable Rate (SVR) mortgages, with 8% tracking the market with tracker mortgages.
Strategies for Navigating the Hike
Faced with rising costs, landlords are exploring various strategies to mitigate the financial burden. About 30% are considering rent hikes as a direct response to their increased expenses. Already, 23% have incorporated potential increases into their budgets, indicating a proactive approach to financial planning.
Interestingly, 14% of landlords are contemplating selling their properties, a move that could shake up local housing markets. Another 14% are looking at converting their properties into Houses in Multiple Occupation (HMO), seeking better returns through shared living spaces. Meanwhile, 13% are eyeing the lucrative holiday let market, potentially diversifying their income streams.
The Broader Economic Backdrop
The backdrop to this unfolding situation is the Bank of England’s ongoing battle with inflation. Over the past year, the bank has implemented successive rate rises, aiming to temper inflation to more manageable levels. Chris Kirby notes, “Although they have had some success in achieving this, there is still a way to go.”
Compounding the issue, the Bank of England’s recent statistics highlight a worrying trend: mortgage arrears have surged by 9.2% from the previous quarter, reaching £20.3 billion—a 50% increase compared to the previous year. This spike underscores the financial strain faced by property owners and the ripple effects on the broader economy.