Buy-to-let arrears cases double in a year – Octane Capital

Cases of buy-to-let arrears have grown by 100% in a single year, as more landlords experience rising mortgage rates, research from Octane Capital has revealed.

Octane Capital analysed quarterly arrears cases where the mortgage balance is in arrears of at least 2.5%, with data running from the start of 2019 to now.

Arrears cases reached a record high of 11,540 in Q3 of 2023, 100.3% higher than the equivalent period in 2022, when there were only 5,760 cases.

Cases of buy-to-let arrears increased for four consecutive quarters, with the latest being a 28.8% rise between the second and third quarters of 2023.

The proportion of total buy-to-let loans sitting in arrears rose by 0.29% year-on-year, doubling from 0.28% in Q3 2022 to 0.57% in Q3 2023.

The Bank of England base rate, which increased from 0.1% in December 2021 to 5.25% in August 2023, has since been on hold, while further steep increases seem unlikely, with the inflation rate falling to 4.6% in October.

Octane Capital suggested that improved confidence would filter down to mortgage lenders, which could start cutting rates as they look to compete for business.

Meanwhile, residential homeowners were more likely to be in mortgage arrears, as 1.0% of residential loans were in the red in Q3, compared with 0.57% for buy-to-let.

However, cases of arrears in the residential space actually fell by 1.8% year-on-year.

Jonathan Samuels, CEO of Octane Capital, said: “Tough conditions in 2023 have finally filtered through to landlords, as arrears cases have more than doubled year-on-year.

“While landlords are usually better placed than homeowners in riding out times of trouble, investors still have to price rents according to the market rate, so it depends on the region whether they’ve been able to fully absorb rising costs with higher rents.

“There’s a tricky balancing act when it comes to hiking rents, as steep rises risk alienating existing tenants and resulting in a void period, negating any benefit.

“The good news for landlords who are struggling is the period of escalating interest rates appears to be over, as steadier inflation means the Bank of England has less of a need to increase the base rate again, which could filter through to increasingly competitive mortgage rates.”