The rising cost of mortgages. Is there still a profit to be made for a landlord?

Earlier this month, the Bank of England increased the base interest rate to an eyewatering 2.25%, the highest rate since 2008. Simply this means that Landlords on a variable rate buy to let mortgage will see their mortgage repayments increase. As the economy faces further problems, it is likely that this will continue to steadily increase during the foreseeable future.

When you consider this increase in mortgage payments, the effect of the removal of a landlords right to deduct all mortgage interest from their rental income before calculating their tax liability AND the increase in the general cost of living, many landlords are left asking the question as to whether it is worth continuing to rent? Is there any profit to be made at the moment?

For many landlords, the answer to this question is no. Recently, a lot of private landlords have left the market leaving demand for private rented property far exceeding supply. There have been stories from estate agents where, in some areas of the country, they will receive in excess of 300 applicants for a single property. For those landlords that can continue to ride out the current financial storm, their investment in property will eventually pay off.

What can Landlords to in the short term?

The best suggestion is to try and keep mortgage costs as under control as possible.

– shop around for the best mortgage products – you may have to switch lender, but it could be worth it financially

– look for fixed rate deals of two or five years as the base interest rate is likely to keep rising for the foreseeable future

– work with a specialist buy-to-let mortgage broker – their knowledge of the market and strong relationships could save you a significant amount of money

It is also certainly worth trying to manage the rising costs of living, there are some practical steps you can take –

– get a range of quotes for maintenance work – doing your research can increase your chances of working with reliable and affordable tradespeople

– inspect your property regularly – picking up on small problems before they escalate could help you to make big savings on costly repairs

– Increase rent – although an unpopular choice, if the cost to a landlord has increased, it only follows logically that some of this will be passed onto tenants. It is important to get the process for this correct.

Looking forward

At present, the Bank of England have warned that base rates may be as high as 6% in 2023, so in the short term, the situation will not improve. However, it is likely that we will see these drop in the coming years. Furthermore, the new Prime Minister has stated that she feels that Landlords have been given rather a hard time over the last 4 or 5 years by previous Governments and has suggested that the rules on deducting mortgage interest from rental income before calculating tax liability may be reversed.