LONDON--(BUSINESS WIRE)--KBRA UK (KBRA) explores the headwinds facing UK buy-to-let (BTL) landlords amid economic difficulties from rising interest rates, slowing house price growth, and an increased cost of living affecting tenants. This has created a challenging landscape for landlords, especially those looking to remortgage in this new environment. In addition, regulators have altered policies to try and ensure higher quality BTL mortgage origination, including energy-efficiency improvements for older properties.
Key Takeaways
- The BTL sector’s growth will slow and may even shrink as it encounters headwinds from a higher cost of financing, declining tax benefits, changing regulations, and the diminishing disposable income of tenants.
- The remortgage risk factor is elevated for loans nearing the end of their fixed rate period.
- KBRA reviewed a data set of nearly 20,000 BTL loans and found that 20.3% may have a higher remortgage risk factor due to relatively low debt service coverage ratios (DSCR) or high loan-to-value (LTV) levels.
- Within the subset of soon-to-end fixed rate BTLs, the exposure to London is fairly high.
- However, remortgage risk factors are mitigated by a landlord’s ability to raise rents, the diversification benefits of portfolio landlords, and the relatively low borrower leverage in the BTL sector.
- There are further looming risks that cloud the BTL sector, including changes to tenancy rights, taxation, and energy-efficiency regulations.
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About KBRA
KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
