UK landlords battered by higher rates are selling their properties

UK RENTS are surging, but it’s still not a good time to be a landlord. At least that’s what sales in the buy-to-let property market indicate.

For an eighth straight year, landlords are selling more properties than they’re buying, with an estimated 27,520 rentals leaving the market in 2023, a report by estate agents firm Hamptons shows. That’s down from a loss of 47,250 rental homes last year, but continues a trend that has seen landlords downsizing their portfolios in the face of stricter policies and rising costs, including higher mortgage rates.

There were 43 per cent fewer rentals available in the UK during the first 10 months of this year compared with the same period in 2015, according to Hamptons. Rent has skyrocketed in London, jumping 16 per cent year-over-year in September. Still, in many cases it hasn’t been enough to cover the elevated expenses facing property owners. 

Landlords using interest-only mortgages – common in the UK – have been hit especially hard by the Bank of England’s rapid rate hikes. In fact, the number of landlords with a late mortgage payment doubled in the third quarter compared with the same period last year. For many, it’s tipped the scales in favour of a sale. And for renters, that means an even greater scarcity of units.

David Edward, 50, said he’ll likely sell his lowest-yielding property next year in order to pay down his other mortgages, even if that means “kicking out a lovely long-term tenant”.

If a buy-to-let mortgage in the UK has a fixed interest rate, it typical lasts two to five years. And Edward has been slammed by higher rates, estimating that he’ll barely breakeven on his 14 properties over the next two years.

The interest he spends on four of his loans is up four times from last year. And next year the rate on six more loans is set to double.

“This is leading to a structural scarcity of rental properties,” said Aneisha Beveridge, head of research at Hamptons. “Rising rates are making mortgage payments unaffordable for many landlords, who are bowing out.”

Landlords paid 40 per cent more in mortgage interest in August compared with the same month last year, according to Hamptons. Many are falling behind on their payments, according to trade association UK Finance. And the number of tenanted properties going to auction in September rose to roughly 25 per cent of all auctioned properties from 15 per cent two years ago, said Jay Howard, director of UK auction consultancy Hammered Auctions. 

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Of course, landlords aren’t the only ones grappling with higher rates. The elevated borrowing costs have pushed UK home prices down, and kept many people from buying properties. UK home prices were down 4.7 per cent in October from last year, according to Nationwide, and the number of agreed home deals was at its lowest level in four years this past month, according to Zoopla.

To be sure, mortgage rates aren’t the only factor pushing UK landlords to sell. The group first started to do so about a decade ago with the rise of greater protections for tenants and fewer tax incentives.

Policy changes are also contributing to landlords selling their properties, including the 2021 phasing-out of a tax relief on mortgage payments, potential penalties on energy-inefficient units, and the looming end of no-fault evictions. The prospect of a Labour government, believed to be tough on landlords, has also added to jitters.

Dawn Jones, 48, said she’s thinking about selling a Liverpool property next year after going through an expensive eviction process. Rents on the units she owns are not keeping up with her mortgage costs, and she said she’s not well protected again tenants who stop paying.

“If you ask me if I’d become a landlord again 13 years ago, I would say yes. In today’s environment it’s a definite ‘no,’” she said. 

Nobby Clark, too, said he’s selling his £1.1 million (S$1.85 million) three-bedroom apartment in south London, as he’s tired of dealing with tenants and worried about stricter regulations.

Having bought the apartment for £460,000 in 2004 – and renting it out for £3,100 a month –  the 60-year-old fintech business owner said he’s happy to invest the cash in more liquid markets and be done with lettings. “It’s not a good time to be a landlord.”