BOE warns of more pain for renters as landlords exit
THE Bank of England (BOE) warned renters in the UK to expect further increases in rental prices on top of the recent record surge, after interest rate rises triggered a shake-out of buy-to-let landlords.
Staff at the central bank said a rush by landlords to sell properties could also drag down house prices and affect financial stability. Landlords are responding to higher mortgage costs that have made investment in rental property less profitable.
Buy-to-let landlords are being hit by a tax clampdown and are among the most exposed to higher borrowing costs, since many are on interest-only loans. There is evidence that some are leaving the buy-to-let sector, which represents £300 billion (S$507.8 billion) of outstanding debt, or almost a fifth of mortgage loans.
“Were many (buy-to-let) landlords to exit the market, we expect this would put limited downward pressure on overall house prices, although it would be likely to put further upward pressure on rents, at least in the short term,” said BOE staff workers Gabija Zemaityte, Elle Hughes and Katherine Blood.
“In the near term, higher rents are likely, given rising mortgage costs and strong demand.”
They said that renters have “limited capacity” to absorb further increases in costs, noting that rental arrears having risen in recent years. The BOE said the buy-to-let market has been consolidating, and pointed to evidence of a decline in the number of rental properties.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
Still, the pace of spiralling rental costs is predicted to slow next year as affordability is pushed to the limit. The average annual rent increase for newly let UK homes is set to slow to 5 per cent by December 2024, according to a report from Zoopla. Its figures reflect new rental deals, while the Office for National Statistics’ figure shows rises for the whole sector.
The BOE report chimes with a warning from the Royal Institution of Chartered Surveyors, which earlier this week noted further upward pressure on rents due to a poor supply of properties and strong tenant demand.
A separate blog post by BOE staff found that mortgage holders have been cutting back on spending, in anticipation of higher monthly repayments, even before they refinance their home loans.
The research will soothe fears that the huge shift in the UK from variable-rate to fixed-rate mortgages may have slowed the speed at which the BOE’s interest rate rises feed through to households and the economy.
However, the research suggested that households prepare for the higher costs even before their mortgage deals need to be renewed.
Households that are already on more costly deals cut their monthly spending by an average of £50 for every £100 increase in their monthly mortgage repayments. For an expected but not-yet-realised increase of £100, those mortgage holders cut their spending by £28 per month over the past year, with plans to reduce expenditure by £37 in 2024.
Among mortgage holders with fixed-rate deals expiring in 2024, some 55 per cent acted in anticipation of higher costs.
Share with us your feedback on BT's products and services
