It’s currently a very risky time for UK landlords as in the next twelve months a number of changes are likely to affect the private rental sector. One of the most prominent changes will be the Bank of England increasing its baseline interest rate, ultimately leading to monthly buy to let mortgage repayments increasing. Therefore, it is not surprising to see that many landlords are already preparing themselves by investing in extensive landlord insurance policies and remortgaging their buy to let properties in order to take advantage of current low interest rates.
In fact, a recent report conducted by the buy to let mortgage specialist Mortgages for Business has shown that in the first quarter of the year sixty five per cent of buy to let mortgage activity was landlords remortgaging their properties. This is up fifty three per cent compared to the previous quarter, showing that a number of landlords are already trying to protect their businesses from the changes that will occur in the near future.
David Whittaker, managing director of Mortgages for Business, said: “Landlords know that exceptionally low interest rates can’t last forever, but now they need to act on that instinct. The Bank of England will almost certainly raise interest rates before the next general election, and that will have a sharp effect on anyone caught out in less than twelve months’ time.” Data from the Council of Mortgage Lenders (CML) has also shown that buy to let lending has decreased, however it is still up compared to the previous year.
Paul Smee, director-general of the CML, said: “We would expect a seasonal lending dip around this time of year. However, lending to both first-time buyers and home movers bucks this trend, continuing to show momentum. The substantial year-on-year growth shows how far the market has moved since the flat period experienced up until around a year ago. The new regulation of mortgages that takes effect at the end of April is a significant change.
“The industry is ready for the transition, although there is clearly potential for lending to be distorted temporarily over the coming months, given the magnitude of the changes and the importance of complying with regulatory expectations. Overall, we expect to see continuing growth in mortgage borrowing ahead, within responsible lending parameters, as the pent up demand of the recession years finds an outlet in a stronger market.”
It is also not surprising to see that in order to reduce the amount of risk to their businesses a number of landlords are also ceasing to let to DSS tenants, especially in London where house and rent prices are increasing steadily. The London Assembly Housing Committee published a report called “Assessing the consequences of welfare reform” which discussed the issues that the recent welfare reforms have caused in the private rental sector.
Not only did it highlight the fact that a number of landlords now state that they no longer feel comfortable letting to DSS tenants, but also that there has been a four hundred per cent increase in the amount of Assured Shorthold Tenancy evictions since 2010. Discussing the report, Darren Johnson AM, chair of the Housing Committee, said: “London’s high housing costs and the more recent downward pressure on wages have contributed to a rise in the proportion of London’s households in receipt of housing benefit.
“Housing benefit is not just a safety net for people who lose their job. It also ensures that pensioners, people with disabilities and those in low paid jobs can afford to live in London. While there has been no large-scale and sudden movement of households from London, we have heard evidence of a range of problems including more evictions and rising homelessness and councils are having more difficulty finding affordable accommodation for their residents.
“The mayor and the government should do more to closely monitor the impact of changes to housing benefit. The welfare system must ensure that those at risk, particularly vulnerable households, get the support they need to continue living in London.” The welfare system and the private rental sector are both subjects that most political parties will cover in the lead up to the General Election in May 2015, however until then it looks as though landlords will continue to batten down the hatches.