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More UK Buy-to-Let Mortgages Dip Into Arrears as High Rates Bite - BLOOMBERG

FEBRUARY 08, 2024

BY  Damian ShepherdBloomberg News

, Source: UK Finance

(Bloomberg) -- The number of UK buy-to-let mortgages falling into arrears surged 18% in the final quarter of 2023 as high interest rates and stricter regulation weighed on landlords.

There were 13,570 such loans behind on payments at the end of December, according to data compiled by industry group UK Finance. That’s up from 11,540 at the end of September and is more than double the number recorded a year earlier.

The housing market is facing intense pressure from higher borrowing costs and the worst cost-of-living crisis in a generation. The rental market is bearing the brunt of the turmoil as landlords — whose interest-only mortgages are particularly exposed to rate hikes — either sell up or hike rents in response.

A record number of buy-to-let firms were established in the UK last year as landlords sought to cut costs by shifting rentals into a corporate structure. For landlords whose properties are registered under a limited company, mortgage interest is treated as a business expense, meaning it’s possible to deduct interest costs before paying corporation tax. 

Read more: UK Landlords Move Homes to Company Structure in Bid to Cut Costs

A reduction in mortgage interest costs from the highs of 2023 has meant some relief for borrowers recently. Some of the cheapest deals are below 5%, which will be welcomed by those looking to remortgage after rates rose to the highest in almost 15 years last summer.

The overall volume of loans in arrears remains low as only a small proportion of debts have come up for renewal since the Bank of England began raising benchmark borrowing costs to tackle inflation. It’s also been kept in check by rules introduced since the financial crisis to ensure borrowers could afford their loans if rates increased.

Read more: Why Mortgages and Housing Are Hot UK Election Issues

UK Finance said 0.69% of buy-to-let mortgages were in arrears, defined as being overdue on at least 2.5% of the balance of the loan. Lenders took possession of 500 BTL properties between October and December. That was 11% more than in the previous quarter and 56% higher than in the same three month-period in 2022, according to the data.

Meanwhile, the number of homeowners in arrears has grown more slowly, up 7% from the previous quarter to 93,680, and 25% higher year-on-year. Homeowner mortgage repossessions dropped 14% from the third quarter to 540, which is close to historic lows.


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