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Housing Studies Association 2015
Dr Alison Wallace
BUY-TO-LET MORTGAGE ARREARS:
Understanding the factors that influence
landlords’ mortgage debt
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Outline of study
• Funded by Lloyds Banking Group
• Grew out of policy discussions with Shelter and others about reform of the private rented sector
• Based on mixed methods:
• English Housing Survey- Private Landlords Survey 2010 (c.1000 landlords in England)
• Lenders BTL loan book data (c.330K loans, September 2013)
• Interviews- 25 landlords across UK, 2 landlord advocates, 8 lenders (c. 60% BTL market)
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BTL Mortgage Arrears 2008-2013Fig. 1: Rate of arrears BTL and residential (%)
Sources: CML Table AP8
2008 2009 2010 2011 2012 20130.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
OO
BTL
Fig.2: Rate of possessions BTL and residential (%)
2008 2009 2010 2011 2012 20130.0
5.0
10.0
15.0
20.0
25.0
Fig.3: Buy-to-let possessions % of all possessions
• BTL loans commercial• Moved through arrears
process more swiftly• BUT unsure if propensity
of individual BTL loans to fall over is lower than residential
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Landlords Finances
• Diverse spectrum of landlords, largely ‘cottage industry’, various submarkets, (Rugg and Rhodes)
• Landlords more affluent than wider population, BUT significant % financially constrained (Lorde et al.; BDRC)
• Crook et al. show finances influenced by market and business risks
• Scanlon and Whitehead- Landlords do not always provide a rational response to market signals
• Bevan and Rhodes- work even prior to the boom showed a pool of landlords not breaking even
• Other potential risks evident: policy risks and personal risks
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Regional rents 2006-2013
Annual change existing rents English region 2006 to2013 (Source: IPHRP)
darker line=region; broken line= England
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EHS –Private Landlord Survey 2010
• 16% small problems 6% serious problems with mortgage costs
• Selective licensing associated with problem mortgage costs, but fell away in statistical analysis
• Tenant receiving housing benefit associated with tenant rent arrears but not with landlord’s loss of income, direct payments HB to tenants or HB shortfalls/ top ups
• Problems with housing benefit administration was associated with problematic mortgage costs
• NB: Survey data collected 2009/10
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EHS-PLS factors increase likelihood of problematic mortgage costs
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Lender BTL loan book data 09/2013
• 3% loans 1 month or more in arrears.
• 1.4% 3 months or more in arrears (Higher than industry average at time 1.16%)
• Higher mortgage arrears (1+ month in arrears):
• Northern Ireland 6%, NW
• property types, 5% flats/apartments
• landlords, 8% landlords with multiple loans
• year of advance - 1/3 loans advanced in 2007 in arrears
• Data indicates remortgaging or sales difficult to achieve negative or low LTV –
• Half of loans >75% LTV – 1/5-1/4 loans in Scotland, NW. NI unable remortgage regular loans
• 11% estimated negative equity (NI 26%, NW 25%, Scotland 22%)
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Lender loan book data (2013) Factors increase likelihood of 1 month arrears
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Landlord and Lender Interviews
• BTL conceived as a business but not always operated as such. For some no due diligence or business acumen
• Sitting behind formal arrears figures are pool of struggling landlords not in arrears
• Many landlords trapped by negative or low equity (weak housing markets)
• Adverse events in personal or other business lives spilled over into BTL arrears (all housing markets)
• Lenders complicit in underwriting poor investments
• Mixed evidence on policy risks- HB and licensing challenging in context difficult markets, but in some areas cannot avoid HB
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Discussion
• Policy concern as c. 50-60,000 tenants’ landlords in arrears , more struggling financially and constrained in ability to fulfil obligations and signalling exits from market when able
• Formal rent recovery risky and unaffordable to some landlords so could undermine confidence in longer lets
• Wider welfare changes undermine tenants in market more than lender policies
• Argue that lending criteria a poor fit for qualities required for stable market investment, business not hobby
• Institutional investment seen as solution to stable rental markets but lenders could also have a role in securing more stable BTL market
• Implications for regulation in BTL mortgage market.
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Summary
• PRS critically important as access to social housing and homeownership constrained
• The factors that influence landlord mortgage arrears can contribute to weaknesses in the sector
• Landlords letting activity threatened by interaction of poor business practice, market change, incursion of personal difficulties into letting activities, and policy shifts.
• Policy concern as ambition for professional safe secure stable PRS
• Lenders could consider how their lending criteria could contribute to these goals
• Greater regulation required but lender/landlord resistance strong
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Thanks for listening
Dr Alison Wallace
www.york.ac.uk/chp/
@CHPresearch
