Buy to let landlords are increasingly falling into mortgage arrears, while homeowners are seeing the opposite trend, research reveals.
Property lender Octane Capital has analysed data for mortgages that have slipped into arrears by 2.5% or more of the outstanding balance for both the BTL and residential sectors.
It found that over the last four years, BTL arrears have rocketed by 42.6%, climbing from 4,930 in the first quarter of 2019 to 7,030 in the same period in 2023.
In stark contrast, the cases of homeowner arrears during the same period saw an 8.6% fall from 83,870.
'Mortgage rates and high inflation stretching people's affordability'
Jonathan Samuels, Octane Capital's chief executive, said: "It's certainly a worrisome time for the property market, with mortgage rates and high inflation stretching people's affordability to the limit.
"It's striking that buy-to-let landlords are becoming less shielded over time from the economic conditions, suggesting they are unable to entirely recoup their lost income in the form of higher rents."
He adds: "The research suggests levels of arrears are in no way out of control, however, so there's no need to be too doom and gloom about the state of the housing market."
Landlords bearing the brunt of the economic climate
Octane says the figures do hint at a worrying reality – that landlords seem to be bearing the brunt of the current economic climate.
With mortgage rates and energy costs escalating faster than rental prices, landlords' financial woes look set to worsen.
However, the lender says that homeowners currently account for most cases of arrears.
In Q1 2023, around 76,630 homeowners found themselves in arrears of 2.5% or more of their mortgage balance, representing 0.87% of total homeowner loans outstanding.
This figure has remained relatively stable over the past four years, peaking at 0.94% in Q1 2021.
Landlords in arrears of 2.5%
In contrast, the number of landlords in arrears of 2.5% or more of their mortgage balance totalled 7,030 during Q1 of this year and accounted for 0.34% of total outstanding BTL loans.
However, while this proportion is less than half that of owner-occupiers, it is the highest seen since Q1 2019.
It is also the highest proportion of all BTL loans, except for Q4 2022, when it also sat at 0.34%.
The data also suggests that more landlords and homeowners will struggle as a five-year fixed mortgage rate is now above 6%.
Landlords haven't been offered any help
And while landlords haven't been offered any help, the Chancellor Jeremy Hunt has introduced a mortgage charter to reassure homeowners of lender support.
That will see a homeowner having the option to switch to an interest-only mortgage for six months without affecting their credit score.
Also, lenders cannot repossess a homeowner's property until 12 months after their first missed payment, which gives them time to get their finances in order.
Mr Samuels said: "The Chancellor's mortgage forbearance measures are designed to reassure people who are worried about the impact of rising rates, and it's welcome these measures have been introduced before the horse has bolted - cases of arrears need to be tackled before people fall into trouble.
"We'd still recommend mortgage holders to keep paying their loans as normal unless they are in need of emergency action, as measures like interest-only loans will only result in higher payments down the line to compensate."
'BTL mortgage arrears are rising for landlords'
Simon Thompson, the managing director of Accommodation for Students, said: "The news that BTL mortgage arrears are rising for landlords should not come as a surprise.
"The private rented sector has a lot of issues to deal with - especially as BTL mortgage rates are rising like they are.
"There will be lots of landlords in for a shock when they come to remortgage this year and facing the prospect of hiking rents to help pay for the increase - or selling up."
He added: "What we need as a vital part of the housing sector is a government plan to help struggling landlords - similar to what they have done for homeowners with the new mortgage charter."
