Buy-to-let crisis to trigger property fire sale as landlords suffer losses

A buy-to-let crisis will expose the landlords of 365,000 properties to losses next year and risks triggering a wave of property fire sales that could drive down house prices.

Hundreds of thousands of buy-to-let properties in England will become loss-making by the end of 2023, according to analysis by the consultancy Capital Economics, as landlords come to the end of fixed-rate mortgages and are forced to endure steep increases in their interest rates.

Experts said these “timebomb properties” will drive down house prices across the market even further, as landlords cut their losses and sell up.

The borrowing costs for a typical landlord coming to the end of a two-year fixed-rate buy-to-let mortgage in 2023 will more than double from 2.89pc to 6.3pc after the Bank of England repeatedly increased interest rates, according to Moneyfacts, an analyst.

For a landlord with a £150,000 loan, this would mean repayments rise from £361 a month to £788 – an increase of £427.

This rise in costs will easily wipe out the profit made by a typical landlord, which is £210 a month, or £2,526 a year, according to Hamptons estate agents.

This financial crunch has raised concerns about the health of the wider housing market, as a flood of cheap properties being listed for sale would place significant downward pressure on house prices.

On Friday one of the country's biggest mortgage lenders, Halifax, warned house prices could fall by 8pc next year. Nationwide has previously stated its worst case scenario is a 30pc drop.

Clive Betts, Labour MP and chairman of the housing select committee, said: “Even if a portion of these properties are listed for sale, it will be a really major shock to the whole housing system.”

Capital Economics estimated 365,000 buy-to-lets will become loss-making by the end of 2023 as their current mortgage deals expire. There are about 4.5m rental homes in England, meaning losses will hit at least 8pc of stock – or one in 13 properties. A further 182,500 buy-to-let homes could becoming loss-making in 2024, if rates do not fall.

Landlords are already racing to sell. We Buy Property, a cash buyer, said there had already been a 70pc rise in landlords wanting to sell properties compared with last year.

Andrew Wishart, of Capital Economics, said: “Even those who will still make a positive cash return may consider selling up.”

It is the latest blow for landlords who have been repeatedly hit by unfavourable tax changes by ministers. The Government phased out tax relief on buy-to-let mortgages between 2017 and 2020, which meant landlords with properties in their own names could no longer offset all of their interest payments. Mr Betts added: “Most people pay tax on their profits, landlords pay tax on their earnings.”

Plans to introduce new minimum energy performance certificate requirements for landlords will also require many to carry out expensive improvements.

Matthew Jackson, of Mint Financial Services, an adviser, said landlords were sitting on “timebomb properties”. The collapse of the buy-to-let market also has repercussions for tenants, who could find themselves evicted if owners leave the market.