The buy to let mortgage gave a new wave of ordinary people the opportunity of a second income or pension investment in the form of a second property. Having a mortgage on the home they lived in wasn’t a problem – renting out the second property would more than cover the costs and provide a rosy financial future.
However, in the last quarter of 2017, there were 1,200 buy to let mortgages in ‘significant arrears’, meaning that more than 10% of the payments due were outstanding. 5,100 buy to let mortgages were in 2.5% arrears. The figures are a fifth higher than the same quarter of the previous year.
When the tenant stops paying the rent, the landlord must continue to pay the mortgage and associated bills. Evicting a bad tenant can take as long as ten months. The loss of rental income and costs involved in reinstating the property to a rentable condition can be too much for many landlords, and there is now the threat of rising interest rates when many buy to let mortgages are on a higher interest rate.
Tax changes and a surcharge of 3% in stamp duty, together with increasing compliance costs, are taking their toll on smaller landlords, who are slowly pulling out of the market as a result of these burdens.
Property experts agree that rents will inevitably rise as a result.