Landlords' Struggles Amid Rising Interest Rates in 2023

Buy-to-let mortgage arrears have doubled in a year as landlords struggle to make rents cover interest rate rises.

As more landlords consider selling investment properties, official data from two sources underlines how 14 interest rate rises in a row have combined to weigh down the finances of private landlords.

Banking trade body UK Finance has counted 11,540 buy-to-let mortgages in arrears in the three months until the end of September - up 29 per cent on the previous quarter and almost precisely double the 5,760 behind with payments at the same point last year.

During Q3 2023, buy-to-let lenders repossessed 450 rented homes - the same number as Q3 2022.

UK Finance says buy-to-let arrears account for 0.57 per cent of lending, and the group expects the figure to remain below one per cent for Q4 2023.

"The increases in arrears are driven by the combined impact of both cost-of-living pressures and higher interest rates,” said a UK Finance spokesman.

"In particular, interest rate pressures are felt more acutely in the buy-to-let sector, where landlords may not be able to raise rents to cover the increases in their payments."

Rising interest rates squeeze profits

After years of financial gain triggered by the ever-increasing demand from tenants pushing up rents and as house prices soared to record levels, tax and legal changes introduced by a government determined to regulate the sector are starting to bite.

Often, high-interest rates mean landlords pay mortgage lenders more each month than they are collecting in rent.

Meanwhile, the Ministry of Justice has released data highlighting more buy-to-let landlords pressing repossession claims in the courts, while the time taken to enforce a claim has risen from 22.3 weeks to 23 weeks in a year.

Landlord repossession claims in Q3 2023 are 19 per cent higher than a year ago, with 24,938 claims going to the courts compared with 21,007 during Q3 2022.

Claims turning to court orders rose 17 per cent, from 15,350 to 17,977; warrants increased by 14 per cent, from 8,573 to 9,753, and repossessions hit 6,080 from 5,464.

The data shows Section 21 no-fault evictions in Q3 2023 numbered 2,307 - the highest amount for almost five years.

Six-month wait for repossession orders

Although claims are at their highest since the Coronavirus pandemic, they lag pre-Covid levels. The recent peak was 80,006 claims in Q1 2008.

From July to September 2023, 35 per cent or 8,789 of all landlord possession claims were by social landlords, compared to private landlord claims (30 per cent or 7,402). The remaining 8,747 claims were accelerated claims.

The MoJ also admits landlord claims take too long to clear the courts. The law states the time between a claim reaching the courts and a hearing should be four to eight weeks.

Currently, the median timeliness figures compared to Q3 2022 are:

• Claims to order median timeliness decreased from  eight weeks to 7.3 weeks
• Claims to warrant median timeliness dropped to 13.3 weeks, down from 15.0 weeks last year.
• Claims to repossessions median timeliness increased to 23 weeks from 22.3 weeks

The top three councils with the highest rates of landlord claims were:

• Newham, East London - 238 claims
• Barking & Dagenham, East London - 75 claims
• Burnley, Lancashire - 42 claims

The three councils with the most landlord repossessions were:

• Redbridge, East London - 43 repossessions
• Medway, Kent - 31 repossessions
• Bexley, Kent - 20 repossessions