Mortage Rates Rising: How Can Landlords Cope?

Global instability, high inflation, and the effects of Brexit have meant big cost of living increases in the last few months, making it harder and harder for the average person to make do. Further, rising interest rates from new mortgage tax rules and decreasing house prices create additional challenges for Britain’s landlords. What’s going on and how can you adapt? Read on to understand the top ways you can protect yourself.

Recent rate hikes have meant the steepest increase in mortgage rates since 1995. What’s even worse for landlords is the phasing out of certain tax reliefs on buy-to-let mortgages. When this happens, profit margins can suffer, leading to a couple of typical scenarios:

• Increasing rents. In an effort to recoup profit margins, landlords increase their rent rates. However, this can lead to unsustainable costs of living for tenants, who may then have to move out. Thus your property can remain vacant, further reducing your profit margins.
• Selling property. If you own multiple properties, selling off some to cover higher mortgage rates in others can be a short-term solution to the problem, but this will likely lead to even lower profit margins down the line. And when the market is down, you might be selling for less than the property is worth, further decreasing the value of your portfolio.

Instead, your focus should be on healthy profit margins and reducing expenses where you can. See our article on the costs of becoming a landlord to find out exactly where your spending goes.

The benefits of self-management

One of the biggest expenditures as a landlord comes from letting agent fees. In exchange for finding tenants, managing inspections, drafting up tenancy agreements, and collecting rent, letting agents often take a healthy proportion of the rent per month as their compensation. Using a letting agent can gives landlords some comfort that all laws and regulations are being addressed, reducing managerial stress and the time commitment required to be a landlord. But this also eats directly into your margins.

Self-management can lower your upfront costs and enable you to maximise your property’s profit potential. While it may seem daunting to inexperienced landlords, there are a wealth of tools, courses, and other information that can help you manage your property effectively. Explore what Sharehouse’s trusted partners can provide in getting you started on self-management, and be sure to read our resource collection of articles designed to help get landlords off the ground.

Other factors to consider

• Make sure you are getting the best mortgage rate possible and understand the different types of mortgages available to you. Always perform your due diligence and proper research to find who is offering the most competitive rates.
• Explore whether setting up a limited company can help you reduce your tax burden. Making a property company means you will pay corporation taxes rather than personal taxes. However, there are many considerations and complications when setting up and managing a limited company. Be sure to understand the laws and rules completely before going down this path.
• Landlord insurance can help you during the times your property lies vacant. When you are shopping around for landlord insurance, make sure you select a level with the best protection during times of void periods.