Buy-to-let arrears double as landlords feel higher rates pain

With landlords feeling the pressure from rising mortgage rates, many are falling behind on loan payments, with buy-to-let arrears cases doubling in a year.

Since the third quarter of 2022, arrears cases have increased from 5,760 to 11,540, according to research from property lending experts Octane Capital.

The study analysed quarterly cases where the mortgage balance is in arrears of at least 2.5 per cent of the loan amount.

Buy-to-let arrears cases have increased for four consecutive quarters, going up 28.8 per cent between the second and third quarters of 2023.

Read more: Buy-to-let arrears worsening at faster rate than owner-occupied mortgages

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

“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.”

Read more: Individual mortgage debt is lowest on record excluding pandemic

He added: “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.”

The research also found that arrears in the residential space have actually fallen by 1.8 per cent year-on-year, despite these homeowners being more likely to be in mortgage arrears.

Read more: LendInvest lowers rates across residential mortgage range