Housing

Landlords set to pass on mortgage rate hikes to tenants

Surging mortgage rates could see record rents growing further as affected landlords look to cover the rising cost of borrowing

Liz Truss and Kwasi Kwarteng’s mini-budget has sent the UK economy into freefall and the resulting mortgage rate hike means affected landlords will likely pass on rent rises to tenants, a landlord lobby group has warned.

Thousands of mortgage products have been withdrawn from the market amid a warning from traders that rates could reach 6 per cent next year.

That would mean the average first-time buyer paying a 10 per cent deposit would pay a monthly payment of £1,302 – 60 per cent higher than those getting on the ladder at the start of 2022, according to Rightmove analysis.

Such a steep rise means landlords with mortgages will be facing bigger bills and lobby group the National Residential Landlord Association has called on chancellor Kwarteng to adopt a cost of living plan to help landlords as well as tenants.

“Landlords typically hold interest only mortgages, meaning rising rates and fewer products on the market will cause a considerable squeeze on many of their finances,” said Chris Norris, policy director for the NRLA.

“Whilst many landlords prefer to retain good tenants over increasing rents, most simply do not have the means to continue absorbing rising costs indefinitely. The government needs to step in now and provide relief for renters and landlords alike by unfreezing housing benefit rates and scrapping recent mortgage interest changes to boost growth in the sector.

“Failure to act now will leave an already depleted private rented sector in an even more precarious position.”

The landlord group shared the view of housing charities and tenants unions that the government must unfreeze housing benefit rates to make them reflect record record rent prices.

Kwarteng should also make discretionary housing payments available to people not on benefits in the short-term, the NRLA said.

Your support changes lives. Find out how you can help us help more people by signing up for a subscription

But housing campaign groups have called for landlords to absorb the rising costs rather than pass it on to renters because many charge more than the cost of their mortgage payments anyway.

Last week Shelter revealed around one in seven renters have already been hit with a rent rise in the last month.

Polly Neate, chief executive of Shelter, said: “Private renters are the group most vulnerable to economic shocks, because they spend more on housing costs than anyone else and almost half have no savings. Rents are at an all-time high, so if landlords are struggling with interest rates, how can we expect tenants with little financial security to keep footing the bill?  

“More than a million tenants have already had their rent hiked in the last month alone. Unless the government helps low income renters by urgently unfreezing housing benefit, homelessness will rise. A surge in homelessness will cost the economy far more, and ruin lives.”

Ben Clay, an organiser at Greater Manchester Tenants Union (GMTU), said the union has already been supporting renters who have seen their rent rise: “We’ve seen it happen already. We’ve got landlords looking to maintain their profitability, maximising their return, making sure that they maintain a level of wealth increase which is what they’re getting all the time because tenants are paying more than the value of the mortgage.

“At the same time as you are digging yourself into a bigger hole as a tenant who’s got to pay the bills for gas and electricity and food then rents are going up as well.”

Acorn tenants union is among a number of rent organisations as part of the Renters’ Reform Coalition campaigning for a rent freeze like the one recently announced in Scotland to help renters grappling with surging energy bills.

Acorn policy and research officer Anny Cullum told the Big Issue not all landlords will see their mortgage rate rise with only those on variable rates or renewing a fixed rate mortgage set to be impacted by rising interest rates.

Get the latest news and insight into how the Big Issue magazine is made by signing up for the Inside Big Issue newsletter

“With many landlords already charging much more than they pay out in their mortgage and overheads – rent rises will generally be them deciding to pass on costs to protect their profit margin. Yet again, it is tenants who will be made to pay the price,” said Cullum. 

“The recent economic shock that has led to these big changes in mortgage rates is exactly why we need to move away from a housing system that is reliant on the private rented sector, which is so sensitive to the whims of the economic market.”

Generation Rent deputy director Dan Wilson Craw told the Big Issue the rising mortgage prices could see some landlords forced to sell up, potentially driving down house prices and leaving tenants facing eviction.

He warned tenants may need protection from facing an eviction if their landlord sells their home. 

“If tenants are asked for a higher rent but can find a cheaper property from one of these mortgage-free landlords, then a landlord facing a doubling interest payment will start making a loss and will probably have to sell into a market where everyone else’s affordability has taken a hit. As a result we could see a flood of properties which will drive down house prices,” said Wilson Craw.

“Not all tenants will be able to move easily, so we need to make sure that tenants with insolvent landlords are able to stay in their homes. Otherwise we could see another wave of homelessness as portfolios are sold off.”

Wilson Craw did point out that buy-to-let mortgages account for just 40 per cent of the rental market so a lot of landlords aren’t paying off mortgages and therefore aren’t affected.

If your landlord raises rent, what can you do?

In Scotland there is a rent freeze in place to prevent landlords from raising rents until at least March 2023.

In England there are no such protections in place. The upcoming Renters Reform Bill is set to include measures that let tenants avoid unfair rent hikes but the legislation is still a long way from coming into force. The proposed legislation is also set to axe section 21 evictions – or ‘no-fault’ evictions as they are also known – which allow landlords to evict a tenant without giving a reason.

A landlord should issue a tenant with a section 13 notice if they wish to increase the rent in an assured shorthold or assured tenancy and the rise is not set out in the tenancy agreement. If they do not, the increase could be challenged.

A tenant and a landlord may not be able to agree on a rent increase, for example, if the condition of the home doesn’t justify the rise and repairs haven’t been carried out.

In this case tenants can apply for a tribunal to assess whether the increase is fair. The tribunal is made up of a group of professionals who will look at other similar properties in the area for comparison.

Article continues below

Current vacancies...

Search jobs

“It’s a very difficult time and most people don’t know they can actually challenge those rent rises as well,” said GMTU’s Clay.

“Most landlords don’t bother to use the proper legal process to raise the rent, mainly because they know that they can threaten to evict you using a section 21 if you don’t agree to it.

“Most people just give up or move without trying to fight it so it’s important people know that there are ways to fight it.”

Joining a tenants union is another way to resist a rent increase.

Clay added: “Most importantly is getting together with other tenants very much like we do in Scotland with Living Rent. We’re here in Manchester, you’ve got London Renters Union in London and across the country normal people are waking up to the fact they need to take a stand.”

Support our vendors this winter and beyond

If you can't visit your local vendor on a regular basis, then the next best way to support them is with a subscription to the Big Issue. As a social enterprise, we invest every penny we make back into the organisation. That means that with every subscription, we are supporting people in poverty to get back on their own two feet.
Vendor martin Hawes

Recommended for you

View all
Rising homelessness has UK in a chokehold – but this project is fighting back with mixed martial arts
MMA class to prevent homelessness in Sheffield
Homelessness

Rising homelessness has UK in a chokehold – but this project is fighting back with mixed martial arts

Stroke victim is a 'prisoner in his front room' – so these hero builders are stepping in to change that
Band of builders

Stroke victim is a 'prisoner in his front room' – so these hero builders are stepping in to change that

Landlord Tory MPs are trying to 'gut' protections for private renters, analysis shows
no-fault evictions
Renters Reform Bill

Landlord Tory MPs are trying to 'gut' protections for private renters, analysis shows

'An amazing U-turn': Home Office drops bid to allow asylum seekers to live in unsafe housing
Asylum seekers risked being left
Immigration

'An amazing U-turn': Home Office drops bid to allow asylum seekers to live in unsafe housing

Most Popular

Read All
Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits
Renters: A mortgage lender's window advertising buy-to-let products
1.

Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal
Pound coins on a piece of paper with disability living allowancve
2.

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal

Here's when UK households to start receiving last cost of living payments
next dwp cost of living payment 2023
3.

Here's when UK households to start receiving last cost of living payments

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know
4.

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know