Homeowners aren’t the only ones hurt by mortgage turmoil

Being a homeowner with a looming re-mortgage deadline can be daunting. But it may not be as painful as being a tenant.

According to data from the National Bureau of Statistics last month, 45% of the bill-paying population find it difficult to get energy, and 30% of those with rent or mortgages find it difficult to pay. but the situation for renters had deteriorated by about 15 percentage points. than a homeowner in debt.

That’s not surprising at all. The lessee’s personal finances are more nervous than their owner and occupant counterparts. They spend more of their income on rent than homeowners spend on mortgages. That’s about a third of the median income. In London, rent isn’t affordable for everyone, except for high-income earners, according to official data. The only regions of the UK that are affordable for low-income earners are the East Midlands and the North West.

The question is how much worse it will get as mortgage rates rise, and what that means for landlords and their lenders in England (Scotland has imposed rent regulations). And it’s complicated.

Reliable data on the private rental sector are lacking. Still, the basic story is that demand is tight, significantly outstripping supply. A combination of tax and legal reforms is likely the responsibility of the supply side. As BuiltPlace’s Neal Hudson points out, the impact of higher mortgage rates on first-time buyer pricing will help stimulate demand. Property portal Zoopla has seen rental demand more than double its five-year average, but rental housing inventory is nearly 50% below its benchmark.

As a result, rents have risen. Even with the pandemic and periods of sluggish income growth, the share of income spent on rent isn’t really far from the long-run average. Rightmove and Zoopla, which track new rentals, see annual rent growth of 11-12% for the third quarter of this year. This does not include renewals that are likely to result in lower rent increases. Still, ONS data show that rent growth is at its fastest pace since the series began in January 2016.

Coupled with widespread pressure on disposable income, landlords’ chances of raising rents further appear limited. But whether it’s the landlord’s problem or the landlord’s problem is a more thorny issue.

With mortgage rates around 5.5% to 5.75%, RBC analyst Benjamin Thoms calculated last month that mortgage costs would increase by around £375 per month. If the landlord passes that 75% of the bill, the rent will rise by 26% of his, and drop to just over half that in 2023, Toms said.

This is less than the increase faced by homeowners (around £420 per month).But it’s still such a chunky increase that it seems hard to tell. Trade-in —and the young ones take home a boomerang.

Zoopla Research Director Richard Donnell argues that the affordability constraint is driving the pace of rental growth near a peak. Debt levels aren’t bad enough to force landlords across the board to raise rents. According to last year’s official survey of private landlords in the UK, the median loan amount for landlords who buy and rent is just under 50%. For an experienced rental property with an LTV of 50% or less, Donnell says current rents probably cover his 6% interest payment, even if valuations are declining.

It also limits the exposure of landlord lenders.Banks with a sizeable track record of lending to amateur landlords are probably in the worst position, according to Goodbody analyst John Cronin. Examples include Architectural Institute, Virgin Money UK and Metro Bank. Still, unless the housing market actually crashes, it means the amount of equity in a property could affect profits rather than loan losses.

What’s hard to know is how the squeeze will play out among the ranks of moms and pop landlords. However, only about a quarter of landlords with single properties managed complexities such as monthly cash flow calculations. maintenance and repair costs.

Still, it’s clear that homeowners aren’t the only ones being hit, as policymakers worry about mortgage payments reaching 30% of their income.

cat.rutterpooley@ft.com
@catrutterpooley

city ​​bulletin

Early morning wrap-up of the latest business stories sign up To the Cat’s City Bulletin newsletter

Leave a Comment