A quarter of all private landlords have admitted that rent taken from tenants are barely covering their mortgage repayments, and if a interest rate rise was to happen, it could well mean disaster, according to the flat and house share website Spareroom.
Research done by them found that 41% of landlords are just about meeting mortgage re-payments, while 43% said that rent would no longer cover the mortgages if the Bank of England raised interest rates by as little as 2%. Some private landlords have admitted to standing even closer to the precipice, with 22% saying that it would only take an interest rate rise of 1% for the rent to stop covering the mortgage, while 10% stated that a rise of just 0.5 per cent would leave them struggling.
The Bank of England has held interest rates at 0.5% for 16 months and it is very unlikely that an increase will happen in the coming months. However interest rates must rise eventually and that is when some landlords will be in trouble. It is these concerns which have led 63% of landlords increasing the rent in the past six months, with a further 21% saying that they plan to increase rent by 5% this year. But conversely, over half of landlords questioned said they are worried that increasing the rent could end up with them losing their loyal and valuable tenants.
Matt Hutchinson, director of Spareroom, said: “Britain’s landlords are in a Catch 22. On the one hand, the rise in Capital Gains Tax for higher rate taxpayers means that many landlords either won’t be able to sell their buy-to-let properties full stop or will sell at a far greater loss. At the same time, holding onto their properties means they are at the mercy of the Bank of England and facing higher mortgage payments. For many landlords, it is hard to know which way to turn, and it could be that tenants feel the full force of landlords’ financial strain. The vast majority of landlords who have good relationships with their tenants don’t want to force the rent up, but for those who are struggling to make ends meet, it’s the only option.”
Landlords have also been warned about the importance of taking out landlord insurance on their property. Figures quoted from last year showed that 1 in 3 landlords had a tenant who was in arrears, so it is advisable that landlords take out insurance as protection against any financial losses. Insurance will provide cover for legal expenses, which could arise if repossession happens, tenant default and debt recovery.