Despite a forecasted fall in BTL purchase lending and a rise in arrears in 2024, possessions are predicted to be lower than any year between 1981 and 2019, according to UK Finance.
Despite a forecasted fall in BTL purchase lending and a rise in arrears in 2024, possessions are predicted to be lower than any year between 1981 and 2019, according to UK Finance.
The housing and mortgage market forecasts report projected a 13% drop in BTL purchase lending to £7bn in 2024 , which levels off from the 53% year-on-year plunge in 2023 to £8bn.
Arrears for 2023 are expected to reach an estimated 105,600 cases, up 30% on December 2022, while that number is expected to climb to 128,800 by the end of 2024 and 137,800 in 2025 as the pressure on mortgage payments begins to ease.
While arrears are predicted to continue to rise, possessions have remained low at an estimated 4,400 possessions throughout 2023, which UK Finance described as “an incredibly low number by historic comparisons”.
In 2024, UK Finance expects this to increase by 16% to 5,100, which would still see possessions lower than any year between 1981 and 2019.
“With a continuing favourable labour market, extensive lender forbearance, and gradually improving affordability, the vast majority of customers now falling behind will eventually recover their positions,” the report stated.
“The very small minority of cases where this is not possible will not feed through into any material increase in possessions over our forecast period.”
BTL Insider asked industry professionals for their opinions on the historically low number of possessions, what this means for the market, and whether this suggests more room for leniency when it comes to stress testing.
Marylen Edwards, head of BTL at MT Finance, said: “The higher cost of living has impacted landlords from all sides, from higher operating and overhead costs to increased interest rates and less ability to increase rents in order to cover these.
“The rental stresses currently applied by the PRA/FCA were brought in to protect borrowing from increases when rates were 0.5% over base, knowing at some point rates would rise and this worked in the entity it was expected to.
“However, higher rates and the stress combined are a double blow for landlords coming off five-year fixed rates, especially when they have been paying sub-4% and were stressed on the same premise.”
Marylen went on to claim that 230,000 mortgages would come to an end, continuing, “leaving landlords with limited options, predominately a product transfer with their current lender if their rental income won’t cover a remortgage to another lender.
“There is no doubt that stress testing needs to be reviewed, but lenders’ hands are tied.
“With rates starting to stabilise, a new applied and appropriate stress would be welcomed.
“However, any change has to be implemented from the regulator and there are other factors that also have to be considered when reviewing, including tax changes and the implications there.”
Jonathan Samuels, CEO at Octane Capital, commented: “It’s understandable that lending is predicted to remain subdued in 2024 given the ongoing effects that have suppressed housing activity during this year.
“The base rate is now expected to come down in 2024, so it will be interesting to observe the impact this has on affordability, product availability by banks and lenders, and if appetite increases from landlords.
“One would anticipate an injection of stimulus to enter the mortgage market, resulting in more and better products, enhancing activity overall.”
Wendy Docherty, director at SPF Private Client s, added: “Many borrowers find themselves unable to remortgage their BTL and stuck on their lender’s high standard variable rate as the affordability requirements are too stringent to switch to new, lower rates elsewhere.
“Many must stay with their existing lender and, if they can’t find a buyer because the sales market is challenging, they may fall into arrears.
“Lenders need to look at the options to make it easier to remortgage; offering lower rates with higher fees can help, but not everywhere in the UK, mainly due to lower rental yields in some areas.
“Those affected tend to be smaller, less experienced landlords with one or two properties — the tax changes have really hit them hard, along with cost of living increases and higher mortgage costs.
“[Those landlords] may wish to consider moving into a limited company as this would greatly reduce costs and tax, but there are additional fees to consider such as stamp duty and capital gains tax, so it may not be a cost-effective option.
“It is worth seeking advice from a broker who specialises in such structures — some landlords are also increasing rents to cover higher costs, which isn’t good news for tenants already struggling with rent rises.”
