What’s next for Property Investors as Buy-to-Let arrears soar
Up to 225,000 landlords face losses on their rental properties as a third plan to sell their buy-to-let amidst mortgage chaos according to new figures from Octane Capital, which has revealed that mortgage arrears are on the rise, with cases exceeding 2.5% of the loan amount surging by 43% compared to 2019.
This comes as up to 225,000 landlords face losses on their rental properties when the time comes to refinance, according to a separate report. As mortgage rates rapidly climb towards 7%, buy-to-let homes across the UK have become increasingly difficult for property investors to maintain, after a study from Allbricks, a new home-buying and property investment platform, reveals a third of landlords are planning to sell their property as a result.
Shahram Shaida, CEO and founder of Allbricks, explained that rising interest rates alongside a tax overhaul have meant owning bricks and mortar as a means of passive income has become a liability during already-uncertain times. Currently, 40% of individual landlords own more than one property, while almost 1-in-6 own five or more properties, according to government figures.
Combined with the traditional challenges faced by landlords including finding the right tenant, maintenance and insurance, Sharham said that new routes to property investment are crucial to maintaining market activity while also driving down rental prices amidst the current climate.
For instance, the rise of new platforms like Allbricks could be critical in mending a fractured property sector. He explains that whilst property remains a great investment opportunity, housing affordability stands at levels not seen since 1876, which has in turn fuelled ‘Generation Stuck’.
New types of property investment that don’t require being trapped by the direct exposure to interest rates can open up the market to a new generation of investors – and even boost profitability by up to 32% for landlords.
Mortgage rates have soared after the Bank of England (BoE) raised interest rates for the thirteenth consecutive time since 2021. As a result, landlords are now warning that their finances are on the brink of crisis as mortgage rates continue to wipe out profits across the board.
Shahram Shaida, CEO of Allbricks, commented: “Raising interest rates is a blunt tool for fixing the economy that hurts certain elements of the market more than others. In reality, interest rates really only directly impact about 1/3 of the UK population – only the mortgage holders.
“We’ve all seen a reduction in the number of mortgages being provided to first-time buyers but for many people with 5-10% mortgages, the interest rate hikes will be incredibly impactful. It’s also not been great for landlords. Leveraging your debt and taking out additional mortgages to pay for new properties was the game when money was cheap, but the game has changed.
“Having taken advantage of leverage when the rates started increasing works against you quickly and we’re starting to see that also hit the market. By having another option in the marketplace that isn’t directly tied to interest rates, we believe will create the opportunity for stability and positive change.
“Mortgages are just a marketing ploy. The challenges these mortgages come with are blatantly obvious. With the current market and house prices declining, your chances of getting immediately into a negative equity situation are almost guaranteed. Unlike a mortgage, Allbricks avoids negative equity because we are not leveraged. There is no loan and no debt. You’ll never owe more than you own.”