5 Strategies for Overcoming the Challenges of Buy-to-Let Mortgages for Landlords
The Bank of England has raised interest rates yet again, to a fourteen-year high of 3.5%. This is bad news for borrowers of all kinds, but it might be of particular concern for buy-to-let landlords, whose businesses might depend on the availability of reliable finance. For some time, buy-to-let mortgages have been capped at 75% loan-to-value, which means that landlords might not be faced with quite the same level of peril as certain homeowners. Still, there’s a lot to be concerned about.
Let’s take a look at a few of the ways in which landlords might cope with the challenges posed by the current economic environment.
Shop around
While mortgages of every kind will have gone up, there is still significant variation in the market. Shopping around for the cheapest possible deal might make a significant difference to the amount you pay in the long term. Of course, even the cheapest rates are going to be significantly more expensive than what you might have been paying just a year ago.
Increase rent
When a business of any kind is faced with rising costs, it has the option of passing these costs on to the consumer. This means putting up your rent. Naturally, this might persuade tenants that they need to move elsewhere – and with property prices falling for the first time in more than a decade, they might find that they have options – if they can finance their own property purchases. Research the market before you make any lasting decisions.
Consider your costs
You might optimise your other outgoings to offset the rising cost of your mortgage payments. This means keeping on top of maintenance and hedging against unforeseen problems with the help of landlord insurance.
Consider going HMO
Certain kinds of property investment will tend to yield higher profits than others. A house in multiple occupation (or HMO) will tend to yield higher rents, all in all, than a more traditional rented property. This is because you’ll have many tenants living there, rather than few. More intensive accommodation means greater profits, even if the per-head rent remains the same.
You’ll need to apply for a license from your local council in order to offer your property as an HMO.
Relocate
The trends of greatest concern to landlords – rising interest rates and falling property prices – will be felt more sharply in some parts of the country than others. London-based landlords, in particular, might feel the worst of the pain. Moving investments out of the city might help you to soften the blow – though it is a severe measure whose success will only be partial, and is not guaranteed.