Buy To Let Mortgage Arrears Double In Just One Year

Cases of buy-to-let arrears have doubled in a single year, according to a new analysis.

The research, from Octane Capital, analysed quarterly arrears cases where the mortgage balance is in arrears of at least 2.5 per cent. 

The data runs from the start of 2019 and the present day and found that arrears cases reached a record high of 11,540 in the third quarter of 2023, some 100.3 per cent higher than the equivalent period in 2022, when there were only 5,760 cases.

Cases of buy-to-let arrears have now increased for four consecutive quarters, with the latest being a 28.8 per cent rise between the second and third quarters of 2023.

Octane says that while many landlords have been able to shield themselves from the effects of higher mortgage rates and energy costs, clearly that’s not possible for every investor, especially if they’re in a region with a strong supply of rentals.

The proportion of total buy-to-let loans sitting in arrears has risen by 0.29 per cent year-on-year, doubling from 0.28 per cent in Q3 2022 to 0.57 per cent in Q3 2023.

The company says the one positive for investors is the Bank of England base rate, which increased from 0.1 per cent in December 2021 to 5.25 per cent in August 2023, has been on hold since then. Further steep increases seem unlikely, as the inflation rate fell sharply to 4.6 per cent in October, meaning the Bank is seeing evidence that the higher base rate is having the desired effect in curbing inflation.

Octane believes this improved confidence will filter down to mortgage lenders, who could start cutting their rates to compete for business.

The chief executive of Octane Capital, Jonathan Samuels, comments: “Tough conditions in 2023 have finally filtered through to landlords, as arrears cases have more than doubled year-on-year.

“While landlords are usually better placed than homeowners in riding out times of trouble, investors still have to price rents according to the market rate, so it depends on the region whether they’ve been able to fully absorb rising costs with higher rents.

“There’s a tricky balancing act when it comes to hiking rents, as steep rises risk alienating existing tenants and resulting in a void period, negating any benefit.

“The good news for landlords who are struggling is the period of escalating interest rates appears to be over, as steadier inflation means the Bank of England has less of a need to increase the base rate again, which could filter through to increasingly competitive mortgage rates.”