Mortgage holders are deep in the red — and this is driving up private renter evictions

As interest rates continue to climb, there’s been a lot of media focus on how the crisis is affecting mortgage holders, and rightly so. But rising mortgage costs are also driving up evictions in the private rental sector as landlords are forced to either sell their properties or demand rent increases that their tenants simply can’t afford. The government needs to take steps to help mortgage holders who are most at risk of losing their homes, as well as protect renters from losing theirs.

Mortgage holders are in the red

Our near real-time income and outgoings data from thousands of frontline debt advisers — one of the largest datasets of its kind — tells us how the crisis is affecting different groups of people.

We can use it to track how many of the people we help with debt advice are in a negative budget — where their income is not enough to cover their essential costs (like housing, food and energy bills). Even after being helped by our expert advisers, increasing numbers are in a negativer budget and can’t get back into the black. You can read more about this growing problem in our new report, Living on Empty.

Over half (56%) of the mortgage holders we help with debt issues are now in a negative budget — up from 33% in 2019 — higher than both private and social renters.

Not only has the proportion of mortgage holders with a negative budget increased, so has the amount of money they have left at the end of each month. In 2019, the average mortgage holder we helped had £61 left over after paying for essentials. Now, they have a monthly shortfall of nearly £150.

From April to June 2023, mortgage holders have continued to fall deeper into the red, even when the shortfall for other groups has slightly reduced. We think this is because mortgage holders haven’t only been struck by rising interest rates, but are also less likely to benefit from some of the Government’s policy interventions in April — including uprating benefits by inflation (10.1%) and raising the National Living Wage.

The rise of ‘no fault’ evictions

As we help mortgage holders who are falling deeper into the red, we’re also helping record numbers of private renters help with Section 21 ‘no fault’ eviction notices.

We’re helping growing numbers of private renters with Section 21 eviction notices in all parts of the country — but we’re seeing an especially steep rise in London, the South East, the South West and the North West.

These problems — rising interest rates and growing Section 21 evictions — are linked. In January we predicted that the combination of rising rents and high mortgage rates pushing landlords out of the rental market would see an eviction crisis for people renting privately, this seems to have come true.

There are around 2 million buy to let properties in the UK, forming 43% of the private rental sector. Most of these landlords are on interest-only mortgages, making them particularly sensitive to interest rate rises.

Landlords who are struggling to pay their mortgage are forced to either sell-up or seek rent increases their tenants simply can’t afford. This leads to the landlord handing their tenants a Section 21 or ‘no fault’ eviction notice, which they don’t need to give their tenant a reason for.

We know this is happening from the stories we hear every day from our advisers.

People like Dave* have been forced to move from their home of 19 years because their landlord has been forced to sell the property due to increased interest rates.

Lucia* and her family were asked to pay hundreds of pounds more in rent or face eviction. Sudden and large rent increases like this are likely caused by rising interest rates, which have driven up mortgage payments for many landlords.

And we’ve heard from people like Reginald* who are facing eviction because their landlord’s home has been repossessed due to falling behind on mortgage payments.

What needs to change?

The government needs to act to help mortgage holders on the lowest incomes who are at risk of losing their home, while also protecting private renters at risk of losing theirs. 3 things that could help are:

1. Closing the loopholes in the Renters Reform Bill

The government has recently committed to banning “no fault” evictions in the Renters Reform Bill. This is encouraging, but there are critical loopholes that could undermine its aims. This includes new ‘no fault’ grounds that allow landlords to evict tenants if they want to sell their property, without requiring them to provide any evidence; and unreasonable in-tenancy rent increases forcing tenants to move out.

We’re asking the government to introduce a strong framework of protections and disincentives to prevent the new system from being abused. If it doesn’t, unfair evictions will continue — especially if mortgage rates stay high.

2. Unfreeze Local Housing Allowance (LHA)

LHA is the rate set by the government to calculate how much Universal Credit or housing benefit can be paid to support rent costs. But, as this has been frozen at 2020/21 levels, many tenants are unable to meet their costs as rent prices have continued to rise.

Unfreezing LHA and restoring it to its previous level will help protect renters at risk of being evicted because they can’t afford their landlord’s demands for a rent increase.

3. A targeted fund for low-income mortgage holders at risk of losing their home

Last month we called for a targeted fund for mortgage holders who are at risk of losing their home. As we explained there’s already an existing scheme, the Support for Mortgage Interest scheme, that provides help to mortgage holders claiming Universal Credit. But over a quarter of mortgage holders we give debt advice to aren’t currently claiming benefits, but are in severe financial distress and on low incomes.

While Support for Mortgage Interest can be used as a template for support, it shouldn’t fully determine eligibility. There’s a case for both lenders and debt advisers referring those in the worst circumstances, who genuinely might lose their homes, for access to this financial support.

For more data insights from Citizens Advice, see our Cost of Living data dashboard and for more on the rising problem of negative budgets, read our Living on Empty report.

Sign up for our next Cost of Living briefing on 14 September, 12 to 1pm.

*The names of the case studies have been changed to protect their identity.