Landlord Crusader: Which is best? BTL mortgage support or help for tenants to pay rent?

Here’s an interesting question for landlords to consider this week: would you prefer the government to offer you mortgage support or help your tenants pay their rent?

I was pondering this issue with politicians calling for homeowners to get mortgage payment support to tackle rising interest rates. Why?

Why is this an issue when calls to help pay high rents are ignored?

Rising interest rates from lenders affect everyone but I’m puzzled why the Bank of England is pursuing a 2% inflation target when costs and wages are going up. Higher mortgage costs mean there will be less money flushing around the economy and that means a recession is on the horizon too.

There is a school of thought that higher rates will bring recession anyway but don’t worry, all of this will be resolved by the time of the next election late next year (see previous Landlord Crusader articles).

Until then we have the prospect of BTL mortgage repayments soaring, but landlords sit on both sides of the fence of this debate since both options could benefit us in different ways.

Obviously, mortgage support could lower our monthly payments and ease cash flow, while rent support could ensure an income stream that is stable and secure.

But which one is better for you in the long run?

The answer is not so simple

I ask the question because, to me, the answer is not so simple. There are pros and cons to both scenarios, and they depend on various factors such as your mortgage rate, rental yield, tax situation and your long-term goals.

If you didn’t already know, the government already offers mortgage support to homeowners who are struggling to pay their interest payments.

It is called Support for Mortgage Interest (SMI) and it’s essentially a loan that covers part of the interest on mortgages up to £200,000. To qualify, you need to be receiving certain benefits such as Universal Credit or Pension Credit.

It should come as no surprise that SMI is not available to landlords who have buy-to-let mortgages.

This means that if you are a landlord who is facing higher mortgage costs due to rising interest rates, you are on your own. (Has it ever been any other way?).

You may have to renegotiate your mortgage deal with your lender – at fast-rising rates – or switch to a cheaper provider. Or sell up to reduce your debt.

That’s what appears to be happening even with high yielding properties with landlords trying to duck the hefty mortgage increase. This Property118 article explains it well and there was another story this week about there not being a landlord exodus from the PRS. Well, not yet there isn’t.

Government should extend SMI to buy-to-let mortgages

Some landlords have argued that the government should extend SMI to buy-to-let mortgages, or at least offer some form of interest relief or subsidy.

They claim that this would help them cope with the cost-of-living crisis and prevent them from passing on the higher costs to their tenants.

However, this idea has been rejected by the government and, to be fair, it looks like homeowners won’t get anything either. First time buyers can access the mortgage guarantee scheme.

The main argument against mortgage support for landlords is that it would be unfair to renters, who are also facing higher living costs and have no asset to fall back on.

Renters spend an average of 28% of their monthly income on rent, it was revealed this week, and many of them are unable to save enough for a deposit to buy their own home.

Giving mortgage support to landlords would widen the gap between homeowners and renters, and potentially fuel house price inflation.

Offer more help to tenants

A possible alternative is for the government to offer more help to tenants who are struggling to pay their rent.

This could take the form of increasing the housing benefit or the local housing allowance (LHA).

The LHA is currently capped which means that many tenants have to top up the difference from their own pockets.

Increasing the housing benefit or the LHA would benefit both tenants and landlords.

That’s because tenants would have more disposable income and less stress about meeting their rent obligations.

Landlords would have more certainty about receiving their rent on time and in full, and less risk of arrears or evictions.

Cost to the taxpayer

But hold on, this option also has its drawbacks. One of them is the cost to the taxpayer.

Increasing the housing benefit or the LHA would require more public spending, which could add to the government’s budget deficit and debt. The government may have to raise taxes or cut spending elsewhere to fund this policy.

Another drawback is the potential impact on the rental market.

Increasing the housing benefit or the LHA could create an incentive for landlords to raise rents, knowing that tenants are getting financial help.

That would create rent inflation and hurt those who can’t access benefits – and they’ll end up paying more too.

Landlords are starting to panic over rising costs

The big issue is that landlords are starting to panic over rising costs and falling profits, but we are loathed by the media and public, so financial help won’t happen.

Remortgaging homeowners will soon be struggling but we can’t simply pump billions into helping to pay mortgages (like the Lib Dem clowns in LaLa Land suggest).

To me, that isn’t equitable.

But we do need a stable and balanced housing market that offers fair returns and reasonable costs for both landlords, owners and renters.

That will demand a comprehensive and long-term approach that addresses the underlying issues of supply and demand, affordability, quality, regulation and taxation.

We will also need to confront an uncomfortable truth about the UK economy relying too heavily on the housing market.

If interest rates continue rising, we will undoubtedly enter a rocky period of falling house prices and rising costs that will force lots of landlords out.

We will also see remortgaging homeowners getting caught out and rents going up and affecting affordability.

Me? I’d like to see tenants getting more help so that the PRS continues to offer quality homes to those that need them. Landlords have an asset they can cash in at any time, cash-strapped tenants don’t but they do need somewhere to live at a reasonable price.

In difficult financial times, difficult decisions must be made by everyone but helping those who are struggling to pay rent benefits not only them but also landlords – and the wider housing market.

Until next time,

The Landlord Crusader

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