Being a landlord isn’t as glamourous as everyone seems to think it is, is it?

Most people who are not a Landlord assume Landlords are raking in the cash from their investment. While there is some truth in the old adage ‘’you cant go wrong with bricks and mortar’’ and for many it is an amazing source of income, it is not always the case. 

If you are fortunate enough to have bought an investment property and no longer have a mortgage on the property the current interest rate rises will not be of a great concern for you. However for those Landlords that have mortgages, potentially on their own homes as well as a portfolio of properties, the financial consequences could be severe.

Lets set the scene…over recent years Landlords have seen big changes in legislation surrounding the Buy To Let industry, the main one being the application of income tax on any net profit from rental income, in many cases at 40%, which has had a huge impact on how much a Landlord is making from their investment. Add to this more layers of compliance in the form of EICR certificates, meeting EPC minimum requirements, rising costs for repairs and maintenance on the property and you have very little profit margins for the majority of Landlords. This can be countered slightly with strong growth in rental prices but again void periods are a potentially expensive time if not kept to a minimum. With many tenants struggling with bills like most of us it is also a necessity to have comprehensive landlord insurance cover that has double in price in most cases off the back of Covid19.

Now I am sure everyone is aware to some degree of the latest news surrounding interest rate rises. The facts are that they have gone up significantly to 2.25% and will continue to go up. At time of writing rates are at their highest level since 2008 and The Chancellor’s “Mini Budget” of Autumn 2022 led financial markets to predict the base rate could almost treble to 6% next year – up from previous predictions it would top out at 4.75%. This part is speculation but we can almost guarantee we will see further significant increases in the short term. The average 5 year mortgage rate is already hitting 6% and will increase in line with any base rate increases.

For most of us with mortgages we have been used to historically low interest rates since 2008 so these interest rate rises can look intimidating. The truth is they are still low, when you look at the last 40 years where rates have typically been anywhere between 4% -10%, but the concern is that the predictions of where they will peak are conflicting. Some have been lucky and renewed their mortgage term prior to the significant increase on locked in a low rate but for others, if their fixed mortgage term is now coming to an end or due to end shortly they will be hit with huge hikes in their repayments.

It is these large increases in mortgage repayments that could see many struggle to meet those payments. For non-landlords who have a single mortgage to repay it may be a struggle but mortgage stress tests show it should remain affordable even if disposable income is hit hard. But for those landlords who have multiple mortgages this only multiplies the problem for them. If a landlords profit margins were tight before, they may be in for a tough time, it may even mean they are having to top up the income from the rent out of their own pockets in order to meet repayments of their rental property.

For those landlords that have purchased property in recent times where property prices have been at their highest with large mortgages and facing a hike in rates when they renew their fixed terms it may be an option to possibly sell if the figures no longer stack up, especially with prices predicted to fall by an estimated 10% over the next 12-24 months.

The first step is to speak with a mortgage broker and be sure you are currently on the best mortgage rates available to you. Our mortgage broker will be more than happy to give your property portfolio and financial MOT to ensure it is working as efficiently as possible for you.

If any of the above is something you’d like to discuss further, whether in person or an informal call, please get in touch with me on 02084296123 or email me at james@elliotlee.co.uk

James Burgess

Sales Director