But brokers say through careful planning, rent increases and putting the brakes on new purchases, investors are well-placed to weather the storm.
TMW’s study The Private Rented Report revealed the stark news that hundreds of thousands of landlords could face a £225 monthly increase just days before estate agent Hamptons revealed that since 2016, landlords have sold 328,750 more rental homes than they’ve bought.
So, will this year’s cohort of landlords about to suffer a mortgage payment shock head for the exit, or do they have other plans?
Mortgage Solutions spoke to five BTL brokers to find out more.
Passing the costs on
“Landlords have always been resilient, they’ll navigate these choppy waters,” said Hiten Ganatra, managing director of Visionary Finance.
Ganatra said a large percentage of his clients are portfolio landlords. To deal with higher mortgage rates, his clients are reviewing the rents they charge.
“Landlords are asset managing better. They’re on top of their voids and going into a position of recovery, but on the front foot,” he said.
He added: ““They’re monitoring the rents on their properties [that] have had long-term tenants and implementing rent reviews to reflect current market rents. Those tenants who refuse to accept the increase are served notice, allowing the landlord to remarket the property at the open market rent.”
Many of Ganatra’s clients are based in the Milton Keynes area. Three to four years ago, he said, they were getting rents of £1,300-1,350 for three-bed houses around the city. Now, they’re charging £1,650-1,700.
Portfolio landlords are also choosing to spread the cost of rate rises across a number of properties to lessen the impact on their finances and their tenants’ budgets.
Selling up
Those landlords who can’t, or don’t want to, take on higher mortgage costs are selling properties from their portfolios to ease the financial burden or choosing not to buy more homes to add to the private rented sector’s stock.
This puts more upward pressure on rents, which have already reached record highs.
Danny Belton, head of lending at the Mortgage Advice Bureau (MAB), said: “As rents are now higher than mortgage costs, tenants may prefer to see if they can get onto the housing ladder themselves.
“Although there are some good mortgage rates to be had, more needs to be done by lenders to support these customers. The flip side to this is that if there are [fewer] rental properties available, the supply/demand aspect becomes unbalanced and some landlords may exploit this with higher rent demands.”
Although higher interest rates are one reason for rent rises, Ganatra said over-regulation by the previous government over the past decade has also driven smaller landlords out of the market, putting even more pressure on supply and driving rents up. Those landlords who do stay are forced to pass on the costs for regulations such as selective licensing to their tenants in the form of higher rents.
Purchasing power dwindles
Hamptons’ analysis found that landlords purchased 10% of all homes sold across Great Britain during the first half of this year, the lowest share since the estate agent’s records began in 2010.
Paul Cooksley, property consultant at Solidus Financial Services, said: “We’ve seen portfolio landlords stop buying because the deals don’t add up with the current interest rates. Or they’re looking for cheaper properties that are more run-down that they’re willing to do work to so that they can add value.”
Higher interest rates make lender stress tests too prohibitive for many landlords to buy new stock or remortgage, leaving them with the only option of taking out a new deal with their existing lender when their rate is up for renewal. This means they can’t borrow any extra money to add another property to their portfolio.
“We’re contacting our clients with rate renewals on the horizon quite early to have a chat and prepare them, but other than that, there’s not much we can do about the current market and rate increases,” added Cooksley.
Nicholas Mendes, mortgage technical manager at John Charcol, said to support his BTL clients, as well as researching the market for the best rates, the brokerage is educating borrowers on the benefits of owning properties within a limited company structure.
Absorbing higher rates
Scott Taylor-Barr, principal adviser at Barnsdale Financial Management, said: “For many landlords, it’s simply a case of swallowing the uplift. Many of my clients use their buy to lets as part of their retirement planning. They are in it for the long term and are not needing the property to give them an income at the moment. As long as the rent covers the bulk of the mortgage costs, they are comfortable with that.”
Taylor-Barr said he was not seeing a huge wave of landlords looking to sell up due to the current interest rates, but he’d had several conversations with clients about increasing rent. Some have done, as the market for tenants is strong and therefore rents have increased. But he said many are hesitant to do so.
“They often have historical tenants who have always paid on time and looked after the property. My clients are then happy to allow a now below-market rent to continue, rather than risk losing a great tenant,” he noted.
Mendes said landlords are also implementing cost-cutting measures, such as improving energy efficiency and better managing maintenance expenses, to avoid passing on higher costs to their tenants.
