Growing number of tenants miss rent or mortgage payments

The headline is somewhat misleading, a tenant by definition cannot miss a mortgage payment, it that not an Oxymoron? Either way we all know this is getting a whole lot worse next year 🆘🆘👀

Whichever way you look at it this government has created a lot of pain for a lot of people.
Freezing LHA at a ludicrously low level was just spiteful. Creating a huge social divide by inventing the Help to Buy scheme solely for massively overpriced new builds was social engineering at its worse. Forcing young people to move miles from family and friends support networks purely to overpay for a house and transport was appalling.
Now people from many economic levels of society are financially struggling. UC claimants get more help with Cost of Living handouts, DHPs, food banks and Hardship funds. For some people UC is quite generous, for others it's dire. Being a tenant and having children makes a huge difference. The real advantage of claiming UC is that it teaches you how to claim. That's a skill a great many typical middle class people have never acquired.
It's the home owners with children and student loans to repay who are really struggling and will be least likely to know where to access any help. Just as a matter of interest what help is available for young families who did HTB and have now had a huge increase in their mortgage payments? Are their children experiencing far more poverty than the children in UC families?

The Government is responsible for the Crisis what ever way you look it full Stop 🛑.
The RENTERS REFORM BILL Removing Section 21. Introducing Section 24.
Licensing Schemes. A whole raft of Regulation’s some very
unfair that don’t apply to Companies. Institution’s and Build 2 Rent.
Driving out Traditional Landlords with far cheaper affordable Rents also caused many to increase their Rent to be able to afford the extra burden being placed upon them, more coming with Digital Compliance and Returns every Quarter it takes me every Christmas to get to annual one done, not all Landlords are Digital and I can assure you in the main the one’s that are, are not hands on landlords and much more expensive.
Build 2 Rent unaffordable as an example a 3 bed modules Porto Flat in the Sky in Greenford, 3 m2 Balcony £2’750. pm. I have a 3 bed ff large living room Flat in Acton, more in Town less commute with outside space & garden, licensed & Compliant currently let to 4 persons for £1400. pm, so that’s very affordable.
Also a ground floor 2 double bed Flat large living room & garden in Acton, licensed & Compliant for year’s due to Council making 3 parts of the Borough Selective license for £1350. pm fact.
So they can have those 2 for the price of one Build 2 Rent in Greenford or Wembley indeed. Just get rid of the people who
house Tenants with affordable Rents and replace them with those who charge extortionate Rents. Then its headline News there are Rent arrears.

• Ellie Edwards
• 04 December 2023 08:51 AM

My rents are like yours, Michael - and I feel the same as you do, too.

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So what is this supposed "financial support and 'help at hand' that is key at an early stage" for landlords with hiked mortgages they cannot afford to pay?

• Worried Landlord
• 04 December 2023 09:37 AM

There is nothing for BTL interest only mortgages. If you have a repayment mortgage then your lender is supposed to be helpful and offer you a longer repayment term or to switch to interest only for a while. Obviously the full amount still needs to be repaid eventually.

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landlord sector has grown to around 5 million properties (20% of homes) over the last 20 years. The tenants who live in these homes are often people the banks have refused to lend directly to and where the banks chose to lend to landlords instead. These mortgages are covered by different BoE stress test rules set by the PRA (Prudential Regulation Authority) arm of the Bank of England. (see PRA document links not allowed). Page 6 explains the affordability stress rules to ensure affordability of repayments. Section 2.12 explains mortgages should be affordable for 5 years and the rules allowed for rates to rise by 2%, but we know the Bank have raised rates by 5.24% nearly three times the stress test level in eighteen months. There was also a second affordability check to ensure a interest rate as high as 5.5% would be affordable, but many landlords are being charged 8% or even 9% after their fixed rate ends. What is worse banks like Paragon are chasing new customers with lower interest rates while existing customers who roll off fixed rates are being denied lower rates and forced onto much higher payments. The evidence is the banks can afford lower rates but choose not to offer them, In this climate perhaps you agree this practice should be regulated against and the banks forced to help and not penalise existing customers whose only immediate recourse is to pass the rises onto tenants.

It is thought a minority of just 600k landlords have thus far been affected by higher rates, with many landlords being sheltered for the time being by fixed mortgage rates. But when the pain does come it can be impossible to balance rental incomes against extortionate payments.

Desperate landlords are putting up rents and of course richer landlords are following suit. Other landlords have had enough and are selling up as they can earn more more money from bank interest than providing a service and homes under a barrage of ever increasing stress and criticism. This will likely impact the poorest renters most? Rents will likely continue to rise as a direct consequence of BoE policy and unnecessary pain will be felt by indebted landlords and tenants, but the majority of homeowners those without borrowing - will benefit. All this results in a really poor housing policy?

The problem has been caused by the government allowing the BoE to make what were affordable mortgages, unaffordable and then failing to mitigate the brutal impact on the borrowers who have done nothing wrong.

We are witnessing a government that allows Banks to double mortgage payments in a year and then divvy out the income to savers while the banks keep some of the spoils for themselves. By contrast the same government restricts social rental payments. The LHA rents payable to landlords have already been capped by the government for many years. Since 2007 the BoE website shows inflation has risen by 59%, meanwhile government set LHA rents have risen by just10%. In Cleveleys the LHA (Local Housing Authority) rent for a 3 bedroom home was £6,240 in 2007 and is £6,881 in 2023. The BoE inflation index BoE inflation-calculator shows Shows £6,240 in 2007 would cost £9,980 today.

Also the BoE has little credibility in managing previous rate rises successfully, in 2007, following rate rises huge damage was done to the economy. The remedy was to reverse the policy and quickly reduce rates by around 5% to below 1% (where they stayed for the last 15 years). See attached - (economy crash 2008 plots inflation versus interest rate policy and how any management fell apart with little correlation between interest rate rises and the control of inflation).

Further economists believe the reasons behind recent Inflation are mainly accepted as being due to Covid spend, quantitative easing and the War, which resulted in a huge uplift in energy prices.

We should not necessarily credit the BoE with reducing inflation at all? Please consider the example if energy prices double one year the energy inflation is 100% in the first year. But if they remain static and at the doubled level in the second year. Inflation in year 2 is zero, 0% as the price has not risen over the previous year. Inflation will naturally fall particularly where regulated energy prices were over inflated as happened in the UK.

Today there are other examples of seemingly bizarre policy from the BoE, the first to do with selling guilts at the wrong time the second is to do with making borrowing more difficult
All in all the ship looks to be steering towards a sandbank.

If we were to look into how the BoE have been able to get away with such deliberate action to make mortgages unaffordable and whether the government should act to prevent unnecessary hardship, We have previously seen how a well intentioned energy regulator sentenced sixty three energy suppliers to bankruptcy through price controls and it is not clear this was necessary. Shortly after the cull the regulator nearly doubled the price suppliers could charge and had this been done earlier many companies and turmoil may have been saved.

It may help if the government was privy to basic lender audit data to show exactly how the banks and lenders are financially impacted by rate rises. At facia level they appear to benefit and draw excess money over expenditure for every rate rise. The banks and lenders could be made to report their increased revenue for existing mortgages when rates rise compared to the extra money they have to pay for these same existing loans. This would be a useful exercise for the regulator and would at least give some insight into bank profiteering and profitability? The regulator does not appear to have these figures and his correspondence appear to look to be based on goodwill rather than hard evidence.

So it's not surprising some are unable to afford payments the banks told them would be affordable.

• Jo Westlake
• 04 December 2023 13:47 PM

Excellent analysis and some very interesting points.

Five of my mortgages came off their previous fixes this year including one with Paragon. The previous rates ranged from 1.99% (TMW) to 3.55% (Paragon). The new rates range from 4.28% (BM Solutions) to an eye watering 6.69% (Paragon). I did as many further advances on other properties at lower rates as I could and managed to shift about 80% of the Paragon borrowing so it's slightly less painful than it could have been. Quite a bit at 5.09% or 5.6%. All these mortgage increases are going to mean annual rent increases are going to be significant for the next few years. Even though the mortgage may be fixed most of us can't increase rents by that magnitude in one go. During the previous 5 year fix I didn't increase rents much (or at all for existing tenants). Last October was the first time my non UC existing tenants had had an increase for years and that was because of the utility price increase.
In April a different batch of tenants had rent increases because of all the mortgage rises. I spread it as much as possible to keep it affordable and within the level of pay rises most of them will have received. It's going to take about 3 years of modest rent increases to get back to the position I was in a couple of years ago. Then another batch of mortgage fixes end in 2027.
I will say there's a lot of things I like about Paragon. Their customer service team is really good and they don't insist on mortgage brokers being involved. They have more flexible criteria than some lenders. Right now though their product switch rates are horrific. Virtually every other lender has reduced theirs in the last few weeks while Paragon have kept theirs sky high.

Very good point about the LHA rates. In 2010 the 2 bed LHA was £650 per month, now it's £679 for a 2 bedroom property.
In 2011 they changed from the 50th percentile to the 30th. At that point LHA dropped to £585 for a 2 bed. I actually bought one for a specific tenant in 2011 and while I was renovating it someone knocked on the door and offered me £675 a month. The actual tenant didn't pay £675 until LHA rates were increased in 2020. Market rent now would be around £950 to £1100 a month for that flat.

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• Worried Landlord
• 05 December 2023 08:56 AM

Thanks for this it's helpful to see it set out clearly. Trying to explain to tenants why rents have to go up is quite difficult.

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• Robert Brown
• 05 December 2023 18:32 PM

Worried

A 2 word explanation is all that's needed: Market Forces.

If that's not acceptable use a different two words: You're evicted!

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Very good a bit long but true the Banks do us no favours. I had a repayment loan that was very high. When I checked with friends their rate was much lower, so went to see the Bank Manager to try to get it reduced . Nothing doing he wouldn’t budge I was tied in and stuck for some years. Anyway when that period ended I got a much better quote from another Bank and told him I was leaving, He asked what it was and I told him he said no problem we can match that, yet when I was down my uppers he couldn’t help at all.

• Robert Brown
• 04 December 2023 17:38 PM

Hope you still left for the other offer?

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Like Jo, I increased my borrowing on a remortgage by about £100k, last year at 2.35% from BM, as I knew 2 small mortgages at TMW were coming due this year. As they are corporate mortgages, the remortgage rates are higher than personal btl mortgages, like 9%. So now they are both paid off. Will place for sale next year. Cash will be placed in ISAs and keep the remaining as savings, may reduce a loan that will be due in about 14 months. However, this later mortgage current rate as 1.79% is in personal btl so hopefully rate will not be as bad as 9%. Also there is an expectation that Base rates will fall to more about 3.5 to 4% within the next 10 months. Another thing is we will pay less in tax, as credit received on interest will be higher than at present, as even less profits for us. There is hardly any profits now after paying interest and all the cost of maintenance on the 2 properties in personal names.

It’s a waste of time with ownership rights being taken away with the removal is Section 21. I have 3 license’s coming due again immediately after Xmas for third and fourth time another £5’000. License application fees + all the other Certificates incl’ EICR & annual ones another huge cost for the guy to issue those, visit the properties and do what ever remedial work. All my travel and administration work is free by law considered nothing but its me who have get everything land it on their computer to sit there on their bum, look at the
screen there you go £5’000, it me should be getting 5’000,
Vibha. You’ll be hit with 28% c/gains tax which can be substantial its tax on inflation really, you’ll be getting more pounds but worth a fraction of when you bought the property. don’t forget if anything happens to you that tax paid is lost and washed away and tax the whole thing again another 40% inheritance tax that will be 68% tax not worth doing anything. My Accountant don’t see it that way he said its down to me my life’s choice, how wrong he is none of this is my choice everything I do is being forced on me, where’s the Choice.