Landlords struggle to cover mortgage payments

Nia Williams

July 14, 2010

For landlords across the UK, last week’s announcement from the Bank of England that interest rates would be held at 0.5% for the 16th consecutive month was a welcome one, but it may be just a stay of execution as many struggle from month-to-month to cover mortgage payments on their property portfolios.

According to a poll of UK landlords carried out by flat and house share website, Spareroom.co.uk, four out of ten (41%) admitted that rents from their tenants barely cover the monthly mortgage repayments on their properties, while 43% confessed that when interest rates rise by 2%, then the rents would no longer cover their mortgages.

Worryingly, more than one-in-five (22%) landlords said that a rate rise of just 1% would mean that rents would no longer cover their mortgages, and for 10% of landlords the situation is far worse, with an interest rate rise of just 0.5% resulting in a rent-mortgage shortfall.

With many landlords standing on the edge of a financial precipice, the next few months could be make or break if interest rates start to rise. With the coalition Government having raised Capital Gains Tax for higher rate taxpayers from 18% to 28%, many landlords are now not just at the mercy of the Bank of England but also a more punitive tax rate.

Meanwhile, concerns over meeting mortgage payments and imminent interest rate rises have already seen many landlords increase their rents in the past six months.

According to the Spareroom.co.uk poll, six out of ten (63%) landlords have been forced to hike monthly rents since the start of the year, with one in five (21%) landlords increasing or planning to increase rents by an inflation-busting 5% this year, and 18% factoring in an increase of between 3% and 5%.

Although landlords feel that rent increases are unavoidable, more than half (55%) said they are worried that by hiking rents they could lose loyal and valuable tenants.

Matt Hutchinson, director, Spareroom.co.uk, commented: “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.”


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