On the 15th of December, the Bank of England increased the base interest rate to 3.5%. This is the highest rate since 2008. Simply put, this means that Landlords on a variable rate buy-to-let mortgage will see the rising cost in mortgages cause their repayments increase. As the economy faces further problems, it’s likely that further rises are on their way.
When you consider the increase to mortgage payments and removal of a landlord’s right to deduct all mortgage interest from their rental income before calculating their tax liability, many landlords may question whether it is worth continuing to rent.
The media reports that there has been a significant number of landlords exiting the market. Which in turn, has increased demand for private rented property – and that demand now far exceeds supply. There’ve been reports from agents in some areas that they may receive more than 300 applicants for a single property.
What can Landlords do to protect themselves from rising mortgage cost?
Routine property inspections:
It is critical that landlords inspect their properties on a regular basis. Keeping clear and accurate records as to the condition of the property at each inspection is a good idea.
By doing so, landlords can quickly spot any damage caused to the property by tenants. Then, take swift action before further damage is caused. Landlords can also spot required maintenance which should be carried out as soon as practicably possible. This will avoid costly disrepair claims and requests for deduction in rent.
Reliable and experienced contractors:
Landlords are encouraged to have a reliable team of contractors who can carry out any repairs and maintenance in a timely and efficient manner. This causes less disturbance for the tenants. And, it can help guard against claims for disrepair and prevent maintenance issues escalating into more serious issues.
Probably the most controversial approach to the increased costs faced by landlords is passing on the cost to tenants by way of increased rent. Landlords should be encouraged to consider whether the property is let at the correct market rent. If not, make plans to ensure the rent is brought in line. However, this approach is recommended with caution given the increase in the cost of living and the pressure on tenants already faced with high rents. We always encourage clear communication with tenants to understand their financial situation. It’s best practice to avoid the risk of rent arrears accruing and the collapse of the tenancy.
If rent is to be increased, it is imperative that the correct procedure is followed and evidence of compliance with that procedure retained.
The market is predicting that the rising cost of mortgages will continue. And it predicts the Bank of England base rate will rise as high as 4.6% by July 2023. That would mean that the interest rate on the best 2 year fixed rate mortgage could jump to around 5.6%. The Bank of England will next meet on 2nd February 2023 to decide what level interest rates should be set at.
In the meantime, our final tip is to know your portfolio. Make sure you are in control, spot any potential problems early, and seek sound advice to help navigate any challenges that come your way.