Arrear situations in the buy-to-let sector are deteriorating at a more rapid pace compared to homeowners. Octane Capital conducted an analysis of industry data concerning mortgages that have fallen into arrears exceeding 2.5% of the mortgage balance.
The study examined the comparison between the buy-to-let and residential sectors, as well as their performance relative to the pre-pandemic market. Notably, instances of buy-to-let arrears surpassing 2.5% of the loan amount have surged by 42.6% within four years. The figures rose from 4,930 in Q1 2019 to 7,030 in Q1 2023.
During the same period, instances of homeowners facing arrears exceeding 2.5% decreased by 8.6%, declining from 83,870 in Q1 2019 to 76,630 in the corresponding quarter of this year.
According to Octane, this trend implies that fewer landlords are shielded from the current economic climate, as mortgage rates and energy costs rise faster than rental income.
However, overall, residential homeowners still face more prevalent challenges. In Q1 of this year, approximately 76,630 homeowners were in arrears of 2.5% or more of their mortgage balance. Although relatively small, this accounted for 0.87% of the total outstanding homeowner loans.
The percentage of homeowners in arrears of 2.5% or more has remained relatively stable over the past four years, reaching its highest point of 0.94% in Q1 2021.
In contrast, the number of landlords facing arrears exceeding 2.5% of their mortgage balance reached 7,030 in Q1 of this year, accounting for 0.34% of the total outstanding buy-to-let loans.
While this proportion is less than half of owner-occupiers, it represents the highest number observed since Q1 2019, as well as the highest proportion among all buy-to-let loans, except for Q4 2022, when it also stood at 0.34%.
According to Jonathan Samuels, the CEO of Octane, the diminishing protection for buy-to-let landlords suggests that they are struggling to fully recover their lost income through increased rents.
Samuels commends the Chancellor’s mortgage forbearance measures, aimed at reassuring individuals concerned about the impact of rising rates. It is encouraging that these measures have been implemented proactively before arrears cases escalate.
He advises mortgage holders to continue regular loan payments unless they require immediate assistance. Measures such as interest-only loans may lead to higher payments in the future as a compensatory measure.
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