Experts warn that landlords are facing a financial ‘timebomb’

Landlords coming to the end of a fixed-rate two-year mortgage deal are facing a ‘timebomb’ should their investments lose money, and they need to sell.

An analysis by Capital Economics for the Daily Telegraph reveals that around 365,000 properties are at risk of making a loss next year and this could trigger a tsunami of property ‘fire sales’ which would then drive down property prices.

The consultancy warns that by the end of 2023, 8% of the 4.5 million rented homes in England could be loss-making – that’s one in 13 properties.

And another 182,500 BTL properties could be losing money in 2024 if BTL mortgage rates do not fall.

Landlords coming to the end of a fixed rate mortgage

The analysis highlights that for landlords who renew at the end of a fixed rate mortgage could be facing a steep increase in interest rates.

The issue comes with the typical borrowing costs for a landlord more than doubling for those who are renewing when their two-year fixed-rate BTL mortgage deal ends with rates rising to 6.3% from 2.89%.

Capital Economics’ Andrew Wishart said: “Even those who will still make a positive cash return may consider selling up.”

Monthly repayments will be rocketing

For a landlord who has a £150,000 loan, their monthly repayments will be rocketing to £788, from £361 per month. That’s an increase of £427.

The estate agency Hamptons says this rise in mortgage costs will cut into the profits made by the average landlord which are currently £2,526 a year, or £210 a month.

It’s this financial crunch that is raising worries for the housing market because a flood of cheap properties being offered for sale would dramatically affect wider house prices.

The chairman of the housing select committee, Labour MP Clive Betts, told the Telegraph: “Even if a portion of these properties are listed for sale, it will be a really major shock to the whole housing system.”

Landlords are looking to sell up

There are already signs that landlords are looking to sell up with the cash buying firm We Buy Property telling the newspaper that they have seen a 70% increase in the number of landlords looking to sell their properties when compared with last year.

The Telegraph highlights that the analysis will not be welcomed by many landlords who have been hit by several unfavourable tax changes by the government in recent years and who may face tighter minimum energy performance certificate requirements by 2025.

This will see many landlords having to invest hefty amounts to meet a minimum EPC requirement of C with experts predicting that this financial outlay may also lead to lots of landlords leaving the sector.

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