Will we get to bailouts for buy to let mortgage holders.

Written SH on 2023-06-08.

In future tp . Tagged housing economics

As the Bank of England continues to struggle to bring the UK inflation rate down towards its target the upward pressure on interest rates continues. Obviously as interest rates rise the costs of mortgages also increase and while the plight of mortgaged owner occupiers is rightfully prioritised the cost of servicing that mortgage debt is also impacting landlords.

Interest rate rises are also impacting the rental sector and combined with looming reforms proposed in the government’s Renters (Reform) Bill, landlords are increasingly deciding to leave the sector and sell up property, causing further constraints to lettings supply.
RICS, 2023. Several market indicators improve but stubborn inflation rate suggests storm clouds have arrived. online.

For buy to let landlords facing a significant rise in their mortgage payments, that are also concerned that property may not be able to supply the additional payment, an obvious option is to sell the property. This pressure comes alongside other government measures that are also impacting landlords.

However such pressures are perhaps uniformly present throughout the buy to let sector and consequently are likely to trigger a number of properties entering the market at a similar time. The significant quantity of buy to let mortgages in the market may introduce a new dynamic into the housing market, especially in this current crisis. We first imagined this in 2016.

This risk of a devaluation is enhanced as property ownership is concentrated and risks is more focused. If such a property devaluation occurred a significant contagion of rapid selling buy to let property may accelerate any devaluation significantly.
TPEX, 2016. When Housing Fails. online.

The removal of the rental properties will cause upward pressure on rental costs. There is also a chance that the dumping of properties into the market for purchase could also deflate prices, however the chronic undersupply of housing in the UK likely insulates against that eventuality.

However while the danger and risk of a devaluation are massive it has to be considered in the light of the ongoing housing crisis. There is a clear lack of cheap, high quality housing, the only course of action is to increase supply. Yes, there is a risk that an increase in supply will result in devaluation of property but the alternative is to increase homelessness and that is in my opinion unacceptable.
TPEX, 2016. When Housing Fails. online.

The risk to the finical sector of stressed landlords has been imaginable for a significant period. The danger of bankruptcy in the UK context combined with easy of sale as not a primary residence brings a novel risk to this current housing crisis. If panic selling is triggered due to unaffordable mortgage payments it will be an awkward political moment as landlord bailouts are considered and eventually announced.

Tenth Person

A potential opportunity is perhaps arising where cash purchasers maybe able to secure discounts from in distress landlords looking to sell. Such properties may actually lose further value in the short term but are likely to rise in the medium to long term.

Future Imagining

The ongoing affordability crisis in housing can not continue for ever. Pressure for universal services to also include housing are likely to build as once secure home owners find mortgage repayments unaffordable, and government payments to private commercial landlords for housing benefit becomes an ever increasing cost. The consolidation likely to occur in the coming years from smaller private landlord investors into a more consolidated commercial rental sector is likely to enliven this debate.

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References

TPEX, 2016. When Housing Fails.URL.

RICS, 2023. Several market indicators improve but stubborn inflation rate suggests storm clouds have arrived.URL.

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