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What Do Buy-to-Let Landlords Need to Know About Rising Mortgage Costs?

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The UK property market has been through an unpredictable few years. Throughout 2023 and early 2024, interest rates have been high to stem inflation – but this has increased the cost of getting a mortgage for the average home buyer.

For any Buy-to-let landlord keen to make a profit and grow their portfolio, these high rates present a problem. Mortgages are becoming more expensive, and tenants are struggling to keep up with rising rent due to the cost-of-living crisis.

There is a lot of information to unpack around this important subject. Keep reading for everything you need to know about rising mortgage costs. 

Are mortgage costs going up?

Yes. According to The Telegraph, approximately 150,000 Buy-to-let landlords across the UK will see their mortgage costs rise in 2024. With all of these people keen to continue making a profit on their investment, this needs to be carefully thought out.

In general, though, the deposit that a landlord must make to purchase a Buy-to-let property has not changed: 25% is still commonly accepted.

What is causing mortgage costs to go up?

With interest rates currently so high in the UK, buy-to-let mortgages will inevitably become more expensive. The Bank of England has introduced this to reduce the rate of inflation.

Ongoing inflation has had a knock-on effect on other services and products. If landlords are hiring electricians or plumbers to perform maintenance on their property, then this will be more expensive than a few years prior. Likewise, if they are doing this handyman work themselves, the products will probably cost more.

In addition, lots of long-term fixed mortgage deals are ending in 2024 – and as landlords negotiate a new deal, this will be more costly.

What can a landlord do about rising mortgage costs?

Plenty of landlords are showing hesitation about growing their Buy-to-let portfolio. The UK housing market is in a period of uncertainty, and it cannot be guaranteed that mortgage costs will drop significantly any time in the near future.

According to the estate agent Hamptons, landlords have sold more houses than they’ve bought every year since 2016. In light of rising property costs, many landlords are selling up and looking to protect and secure their existing portfolio instead of expanding even further.

There are other ways landlords can increase their income without necessarily putting up rent for their current tenants. If a house they own is empty, for example, then this could be transformed into a House of Multiple Occupation (HMO) so more money can be made from the same space, and the per-room rate can go down for each renter. Likewise, adding an extra bedroom to an existing property could enable a landlord to charge more rent, too.

Renters may be more able to meet their monthly payments if they are allowed to sublet a spare room on their property, too. Landlords may wish to loosen up on previous commitments to forbidding subletting – as if they permit their tenant to sublet, and they may also be able to increase the rent while guaranteeing their tenant can afford it. 

Should I increase the rent that I charge my tenants?

Many property owners are opting to increase the rent they require from their tenants. However, with an ongoing cost of living crisis, this is not always the safest strategy. 

If your tenants are unable to meet your new figures, they may avoid payments, resulting in a (sometimes) lengthy eviction process. Alternatively, they may just move out altogether, leaving you scrambling to find a new person who can afford to meet your payments. In the meantime, you may be without an income – especially since the property market is not as active as it was a few years ago.

Landlords need to keep an eye on the ‘Renters Reform Bill’, which could pass in 2024 and is likely to provide increased protection for tenants over rent increases and dispute resolution. This may impact the choices you make around making up for rising mortgage costs.

The state of the UK buy-to-let market currently

Recent figures suggest that around 15.29% of homes in England are privately rented, with 14.9% in Scotland and 14% in Wales and Northern Ireland. 

Although data is not currently available for the UK as a whole, England currently has the highest percentage of rented properties according to figures, at 15.29% of all homes. This is compared to 14.9% in Scotland and 14% in Wales and Northern Ireland.

The amount that you can expect to pay in rent for a property varies significantly, depending on where you are in the UK. For example, the average rent cost in Edinburgh is £1,986 per calendar month, while in Carlisle, it is £773 per month. In Cardiff, the average rent cost is currently £1,419; in Belfast, it is £1,248 per month. 

For more information specific to your part of the UK, you should carry out research to find an accurate figure.

Is now a good time to invest in buy-to-let?

Most property landlords wait for interest rates to go down before investing further in Buy-to-let. Indeed, most house owners are focusing on solidifying their existing portfolio rather than growing it.

Interest rates are expected to slowly decrease throughout 2024, meaning that later in the year may be a more appropriate time to invest.

Should I sell my buy-to-let properties?

It can be challenging to sell a property with tenants still living there. However, if your house is currently empty – for example, your previous renters moved out because they could no longer afford the payments – then this might be the perfect moment to sell up and protect the rest of your portfolio. 

If you purchased the buy-to-let house many years ago, it will hopefully have increased in value, and you should, therefore, still be able to make a profit.

For any property owner that wants to sell up on their Buy-to-let housing portfolio but still has tenants in situ, this does not necessarily have to be a problem. You can sell a tenanted property directly to a cash house buyer if you want a quick sale for up-front cash, which doesn’t involve evicting your current tenants.

How to maintain a good relationship with my tenants

Maintaining a friendly relationship with your tenants is almost always in your interest. If you irritate them, they have the ability to make your life difficult – such as paying late, underpaying, refusing payment altogether, leaving the property in poor condition, or moving out.

Clear communication, well in advance of any significant changes taking effect, is a crucial part of maintaining a positive relationship with your tenant.

It is essential that you are responsive to their requests, too. If you leave a problem untreated for a long time, they are more likely to take issue with you. 

All of these small details can impact whether your tenant is willing to accept a rent increase further down the line, as well as how on time their payments are made. 

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