London landlords 'nearing crisis point' amid remortgage crunch

Property owners 'riding a unicycle on a tightrope over a pit of sharks' as buy-to-let fixed-rate loans expire

The average London buy-to-let mortgage rate will rise from 2.24 per cent to 5.42 per cent, which translates to an annual increase of £6,384, a rise of 80 per cent. PA

Landlords who plan to remortgage fixed-term loans face monthly payment increases of up to 80 per cent.

New data from Dashly, which monitors more than £100 billion ($126 billion) of mortgages, shows that landlords in London renewing their mortgages this autumn and next spring will be an average £6,384 worse off each year.

Based on a sample of 1,000 buy-to-let mortgages that expire between the end of September and the end of April next year, Dashly calculates, assuming that the best deal is acquired, the average monthly mortgage payment for London landlords is likely to rise from £662 to £1,194.

That is an increase of £532 compared to the average deal signed when interest rates were considerable lower two to five years ago.

The average buy-to-let mortgage rate will rise from 2.24 per cent to 5.42 per cent, which translates to an annual increase of £6,384, a rise of 80 per cent.

“Millions are feeling the remortgage crunch but few, based on this evidence, are feeling it like London's landlords,” Ross Boyd, chief executive at Dashly, told news agency, Newspage.

Rising buy-to-let mortgage rates for landlords has meant the yields on their investments have been falling for months, and many have quit the housing market altogether.

“London landlords are nearing crisis point,” said Imran Khan, co-founder of lettings specialist PropertyLoop.

“In my 20 years working in property, I've never seen such a precarious landscape.

“One recent example involved a landlord with a 100-property portfolio who had to hand back keys due to untenable mortgage payments.”

The brunt of the crunch is being felt by smaller landlords. The situation for those who only own one or two properties is like “like riding a unicycle on a tightrope over a pit of sharks”, said Kundan Bhaduri, director of Kushman Group.

“With most small landlords in the capital only having small savings to hand, it's hard to see how a major repossession crisis can be averted,” he added.

“The government and treasury in particular must step in immediately to stop the brutal treatment of the buy-to-let mortgage sector.”

People sit outside the Bullring shopping centre in Birmingham. The average rental yield in the city is 6.56 per cent in 2022, far higher than many London landlords achieved. AFP

'Mass exodus'

Professional landlords are increasingly switching their attention to housing markets outside of London, where yields are much better.

For example, rental yields in Birmingham last year were 6.56 per cent, according to the property website Zoopla. In London, they were about 2.9 per cent.

As increasing numbers of landlords quit the London market, it can only add to the fall in house prices, experts say. At the same time, as the supply of rental properties reduces, rents can only increase.

“The mass exodus will soon begin, which in turn will have a significant downwards impact on property prices in London and the south-east,” said Craig Fish, managing director at mortgage broker Lodestone.

“Many of our professional landlord clients have now shifted their attention away from the capital to the Midlands and north of England, where rental yields are more favourable.”

But for the smaller, amateur landlord selling up and reinvesting outside the capital may not viable, leaving them stuck.

“Landlords in London are faced with two bad options: accept massively higher interest rates, which mean you’re over £500 per month worse off, or sell up at a discounted price to get out of the chaos that is being a landlord in the capital,” said Samuel Mather-Holgate of financial advisory firm Mather and Murray Financial.

“Buy-to-let has been hit with multiple tax changes over the years making it difficult to make a profit, but the latest rate rises have seen a lot of geared landlords incurring a significant loss.

“This will fuel the oversupply of property for sale in London and prices will continue to spiral downwards.”