Chancellor Jeremy Hunt is today charing a crisis meeting of mortgage lenders, as calls mount for him to take action to help the private rental sector as well as owner occupiers.
So far Hunt has resisted all calls to intervene, even though Bank of England base rate is now 5.0 per cent - the highest for some 15 years and equivalent to a base rate of around 13 per cent at the time that the tax break MIRAS existed.
Ben Beadle - chief executive of the National Residential Landlords Association - comments: “This will add further pressure on renters and landlords alike. Some 85 per cent of buy to let mortgages are interest only, making them especially hard hit by rising mortgage costs. Some landlords have seen mortgage payments rise by almost 240 per cent since December 2021.
“Analysis for the NRLA has found that 735,000 rental properties could be lost across the UK if interest rates peaked at five per cent, further exacerbating the supply crisis renters are facing.
“It makes no sense to have a tax system that discourages investment in the homes renters need, and benefit payments that fail to provide vulnerable tenants with the assurance that they can afford their rents. The Chancellor needs to take urgent action to support the rental market by reintroducing mortgage interest relief in full and unfreezing housing benefit rates.”
And a specialist mortgage broker - Angus Stewart, chief executive of online firm Property Master - comments: “The continued increase in interest rates is causing a perfect storm. George Osborne’s changes to the rules on interest rate relief in 2015 had minimal impact when interest rates were low. However, they are now seriously impacting the profitability of a landlord’s business.
“Coupled with much tougher affordability rules means that many landlords cannot remortgage at current rent levels leaving them on the lender’s SVR some of which are approaching 10 per cent. They are mortgage prisoners, and the logical option is to sell or substantially increase rent.”
Recent research undertaken of Property Master customers identified 40 per cent of landlords having either recently sold or considering selling one or more properties. Stewart says: “If this came to fruition, the impact would be very significant on tenants and the overall housing market. Recent press talk has been of helping homeowners with the increasing costs of mortgages but it’s important that the Government doesn’t ignore Landlords which are a key source of housing with five million households.”
Meanwhile agents have been reacting to the Bank’s move.
Matt Thompson, head of sales at Chestertons, says: “We expect the rate rise to have an impact on over-leveraged buy to let investors whose increased mortgage payments could lead to their investment making limited profit or even a loss. This could result in some landlords deciding to offload their assets.
“At this stage, we haven’t yet encountered homeowners who have been forced to sell up but, if rates continue to rise, some owners may be forced to review the situation and weigh up their options. At the same time, demand for properties in London continues to stay strong as the capital remains a hotspot for a variety of buyer demographics including international buyers.”
And lettings agency Leaders Romans Group has released findings from a survey of landlords of 380 privately rented properties who are registered with LRG brands. It says only 68 per cent definitely plan to maintain their portfolio over the next year.
Rightmove’s mortgage expert Matt smith comments: “Our real-time data still shows that more people are sending enquiries to estate agents to view homes for sale than at this time in 2019. We’ve also seen daily visits to our Mortgage in Principle service increase by 53 per cent over the last month as more people look to understand what they can afford to borrow and repay on a mortgage. This indicates to us that for many people right now, higher interest rates are leading them to assess their budgets and what they can afford rather than put their plans on hold.”