How landlords' rising mortgage costs are colliding with the cost of living crisis affecting tenants.
Published February 2024
Increasing buy to let mortgage costs
Landlords are facing rising mortgage interest rates and property maintenance costs.
Some pass costs to their tenants by raising rents.
Others decide to sell and leave the market. They claim the increased costs weaken the attraction of buy to let investment.
And in some cases landlords struggle to meet the increased mortgage payments. Some will go into arrears leading to repossession by their mortgage lender.
These situations have a knock-on effect for tenants.
Rising rents
Whether landlords are feeling the squeeze or taking advantage of the situation by increasing rents, tenants feel the impact as rents rise.
Average advertised monthly rents outside of London hit a new record of £1,280 by the end of 2023, according to Rightmove's latest rental trends tracker.
The figure is 9.2% higher than 2022.
In London, average monthly rents hit a record £2,631.
And it looks like rents will continue to rise.
Rightmove predicts average rents will go up by another 5% outside of London in 2024 and by 3% in London.
How a landlord can increase the rent
When a landlord decides to raise the rent, they have the option to first informally ask their tenant to pay more.
If the tenant doesn't agree, the landlord must follow a prescribed process to increase the rent.
Most private tenancies have an initial fixed term. During the fixed term, the landlord can increase the rent if there's a term in the tenancy.
If the tenant stays after the fixed term, most tenancies roll into a month to month, or periodic, tenancy. To raise the rent, the landlord must give the tenant a section 13 notice. The notice states the new rent and when the change starts.
Most private landlords can charge a market rent: the amount they could expect for a similar property in the same area.
A tenant can apply to the tribunal to challenge an unreasonable increase.
What a tenant can do about rising rent
Many renters have economic worries during the cost of living crisis: food, energy, gas. Rising rents add another strain.
The tenant might not be able to afford the new rent.
Tenants should check they are claiming the benefits they might need.
There's help for housing costs as part of universal credit. It covers the lowest 30% of private rents and has not gone up since 2020, but will increase in April 2024.
This provides some help. But for many it's a drop in the ocean during the cost of living crisis.
Tenants could apply for a discretionary housing payment from their council. This is money to help when a tenant claims benefits and is struggling to pay the full rent. In some cases, benefits can be paid directly to the landlord to help tenants keep up with rent.
Turn 2 Us has benefits information, including a checker, and a search tool for local advice.
If the tenant cannot find a solution to the problem they might fall into rent arrears and face eviction. If this happens they might be eligible for homeless help from their local council.
Landlord selling up
Many landlords are deciding to sell their property and leave the buy to let market.
Some feel it's no longer profitable for them. Others are retiring. In some cases they're worried about the effects of changing regulations, such as the government's promise to end section 21 evictions.
The impact of this on tenants is that it leaves them in an uncertain position: will they have to leave? Will the new owner give them notice to leave? Will the rent go up?
Tenant's rights after the sale
Many tenants believe a sale ends their agreement or the new owner can ask them to leave immediately. This is not the case.
The new owner becomes the new landlord. The current tenancy continues and the tenant doesn't need to sign a new one.
The new landlord must follow the same legal processes as the old landlord. So if they want to raise the rent they must take the correct steps. If they want to end the tenancy, they must serve the tenant with a valid notice and follow the possession process.
Landlord facing repossession
Interest rate rises mean some landlords can't afford their mortgage payments.
Some landlords will need to put up the rent, but many tenants cannot afford to pay more. Some tenants already can't afford to meet their rent payments due to the cost of living crisis.
Landlords might have to dig into their own funds to meet their mortgage payments. If they can't make up the difference, they'll accrue mortgage arrears and risk facing repossession. In some cases, if a landlord cannot pay their debts they face bankruptcy and possible homelessness.
13,570 buy to let mortgages were in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2023, according to UK Finance.
This is up 18% on the previous quarter.
Tenant's rights after repossession
Tenants often don't know what to expect next or where they stand.
The lender is likely to want to sell the property. It's likely they'll need to evict the tenants. How they do this depends on whether the tenancy is authorised or unauthorised.
A tenancy is authorised if it started before the landlord took out the mortgage on the property, or if the lender agreed to the tenancy after the mortgage started. To evict the tenant, the lender will need to follow the usual legal process by giving notice and taking court action.
A tenancy is unauthorised if the landlord was granted a mortgage before the tenancy started, and the lender didn't give the landlord permission to grant a tenancy. The lender might not have known about the tenancy, or may have refused permission.
The tenant is in a precarious position. To evict an unauthorised tenant, the lender does not have to do anything other than follow the process for evicting the landlord. The mortgage lender must first obtain a possession order, then apply for an eviction warrant, and then instruct bailiffs (certified enforcement agents) to evict the occupiers.
The lender does not have to issue separate court proceedings against the tenant. The warrant allows bailiffs to evict anyone from the property.
The wider picture
These changes - rising rents, property sales - affect the rental market more widely.
When rents increase, it makes it harder for people looking for somewhere to live.
People have to move away from their work, school, and community. For example, there's been a 20% increase in tenants relocating from London to Reading in response to housing costs.
Fewer properties on the market?
Landlords have sold 294,300 more homes than they have bought since 2016, according to Hamptons. This is more than the total number of homes in Manchester or Cornwall.
There are fears that fewer rental homes creates more competition amongst renters.
In 2023, lettings agents received 25 enquiries on average for each property, triple the number in 2019. Supply of properties was down by 35% and there were more tenants looking to move.
It's a challenging environment for people seeking a rental property, but there are signs of improvement. Rightmove research shows a "trend of supply improving and tenant demand easing" in 2024.
The number of new rentals coming to the market is 6% higher than last year. The average number of enquiries agents receive for each rental is now 11.
