The number of BTL mortgages in arrears has risen according to research by UK Finance.
During Q3 2023, there were 11,540 BTL mortgages in arrears, a 29% increase from the previous quarter.
UK Finance has attributed the surge to a combined impact of the cost of living crisis and higher interest rates , with the latter particularly impacting the BTL market where landlords may be unable to raise rents to cover the higher costs of payments.
The number of BTL mortgages in arrears accounted for 0.57% of all residential properties with a mortgage; UK Finance predicts the combined number of homeowner and BTL mortgages in arrears to remain below 1% by the end of 2023.
The number of BTL properties taken into possession remained unchanged since the second quarter at 450.
Eric Leenders, managing director of personal finance at UK Finance, commented: “Anyone worried about making their mortgage payments should contact their bank as soon as they can.
“All lenders have teams of experts ready to help anyone struggling with their mortgage payments with tailored support.
“The sooner you get in touch, the more support options your lender will be able to offer.
“What’s more, reaching out to your bank to find out what support is available won’t affect your credit score.”
BTL Insider reached out to industry professionals to ask how lenders can help landlords to keep on track with their payments and what is causing the increase in arrears.
Roger Morris, director of sales and distribution at Tandem Bank, gave his personal opinion as a landlord: “Firstly, seeking tax advice from a qualified tax adviser, rather than an accountant, can provide insights into potential adjustments to improve the BTL property's profitability — this may include exploring changes in ownership structures, such as moving from joint tenants to tenants in common.
“Secondly, considering strategies to reduce debt and thereby lower borrowing costs can be a viable option.
“Evaluating the overall financial health of the BTL property and making informed decisions to enhance its profitability is crucial.
“This could be, for example, selling the lowest performing BTL to reduce the overall debt on the outstanding BTLs the landlord owns.
“Lastly, landlords grappling with financial pressures may contemplate the option of selling the property — however, it's important to acknowledge the potential challenges in this process, notably delays in court proceedings, especially when tenants are not fulfilling their payment obligations.
“One significant factor contributing to the surge in BTL mortgage arrears is tenants exploiting the system by not making minimum payments — this poses a considerable challenge, as court proceedings can be prolonged, leading landlords to cover full mortgage payments for extended periods.
“In my experience, the process of regaining possession of a property can take up to 18 months, exacerbating the financial strain on landlords, particularly those with only one or two properties.
“Ultimately, the complex interplay of legal delays and tenant behaviours significantly impacts the financial wellbeing of landlords in the BTL market.
“As we navigate these challenges, it becomes imperative for landlords to make informed decisions, seek professional advice, and explore avenues that align with their specific circumstances.”
Steve Cox, CCO at Fleet Mortgages, commented: “At Fleet, we’ve not seen any significant uptick in arrears recently, which is likely to have much to do with our typical customer who tend to be professional and portfolio landlords running property businesses.
“Of course, over the last year to 18 months, rates have increased, and this has made affordability more challenging.
“However, rents have also increased, which does help mitigate some of these mortgage cost increases.
“The spread of products, from both Fleet and other lenders active in the market, and a greater number of products which now come with lower rate/higher fee options, has meant advisers can continue to help their landlord clients find the right solutions, plus we also now offer product transfer (PT) options which are another opportunity for those borrowers coming to the end of their existing deals.
“We have a negligible number of arrears cases however, where this does happen, we work hard with the customer to help get things back on track and this tends to deliver a successful outcome.
“As always, the top of a landlord borrower’s list should be to talk to their lender as soon as there’s any sign of difficulties to work out a viable solution for all concerned.”
Howard Levy, director of BTL lending at SPF Private Clients, said: “It is always best to avoid getting into arrears if at all possible, and there are ways lenders are working with landlords to assist with this.
“To keep landlord payments as low as possible in the first instance, lenders are offering interest rates that are loss-leading in themselves, but with higher lender fees.
“With many interest rates for BTLs now below 5% (when the BoE base rate is 5.25%), this keeps monthly payments low while the lender obtains their margin by charging arrangement fees of up to 9.99%.
“These fees are often added to the loan, which could cause issues further down the line if the value of these properties doesn't increase by circa 7% or so over the course of the preferential rate.
“In addition, lenders are offering five-year fixed rates that use the pay rate to work out the amount a customer can borrow — this is as opposed to a much higher stress test for any rate less than five years, ensuring landlords have a longer term of stability and potential for growth.
“The five-year stress tests could also allow funds to be released for some landlords which can be used to refurbish a property in between tenants, this addition in value would then be useful if high lender fees have been added to the loan and would hopefully go some way to offset this by increasing the value of the property.”
