Mortgage Debt On The Rise

This week, a surge in landlords taking on additional mortgage debt – and how even increasing rents by a quarter won’t stop some landlords from feeling the pressure

It won’t be news to any landlords watching that mortgage repayments are rising – and the Bank of England is widely predicted to raise the base rate again next week for the 15th time in a row. But that isn’t stopping landlords from taking on more debt – in fact over the last 12 months, it has crept up by 19%, to an average of £558,423.

According to research by Octane Capital, this is being driven by an increased reliance on borrowing in some areas, with the average number of buy-to-let loans also increasing by 12%.

The West Midlands has seen the biggest jump in the number of loans – up 49% – with the South East and East also seeing big increases in the average number of buy-to-let loans held per landlord, and in the total amounts owed.

It’s clear the landlord sector is undergoing significant change – with some looking to weather the economic storm by taking on more debt – and others choosing to downsize significantly or leave the industry altogether.

A recent survey found that over three quarters of landlords and estate agents questioned cited rising mortgage rates as a reason for attempting to exit the market. And of the agents surveyed, 98% reported that at least one of their landlords is selling a property.

The rising mortgage related costs come at a time when many landlords are already worried about proposed changes in the government’s Renters Reform Bill, and the EPC rating changes coming into effect.

Almost half of the letting agents and landlords surveyed said the introduction of rolling contracts in the Renters Reform Bill will have a negative impact on the industry –  and the general consensus regarding the proposals tend toward pessimism at best.

However, with so many landlords feeling disenchanted about the industry – counter intuitively this may be potentially a great opportunity for those remaining in the business to consider increasing the size of their portfolios.

Increased rents not going far enough

The obvious answer for many landlords  faced with rising outgoings is to put their rents up to cover those costs – and according to research from Estate Agents Hamptons – that may mean rents going up by as much as 25% over the next three years.

If so, that would see the average rent hitting £1,550 per month in 2026 – with renters having to find an additional £333 per month than in December last year.

While that might superficially sound great for a landlord – in fact for many they will still be worse off in real terms, as they deal with moving over to much higher interest rates in their mortgages – and having to cope with tenants struggling to make those increased payments.

One way that increasing numbers of landlords are looking to overcome that issue – is to ask for tenants to find a guarantor to make sure their monthly payments can be met.

A recent survey found 60% of landlords would ask for a guarantor if the tenant was on a salary that could affect the affordability of a property, while 16% said they now require a guarantor as standard, no matter how much the tenant earns.

Aneisha Beveridge, Head of Research at Hamptons feels that the Bank of England’s attempts to suppress inflation has impacted the rental sector more than any other part of the housing market, adding that:

A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents. And it’s hard to see any of these pressures receding any time soon.

Don’t forget – if you’re concerned about how your tenants will be able to cope with paying increased rent – you can always ask Mashroom’s experts for practical advice on what to do – such as looking at Rent Guarantee Insurance.

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