With inflation surging in the UK and globally, interest rates are rising higher than they have in over 27 years and property owners and prospective property owners everywhere are feeling the pinch as a result.
So, what does this mean for landlords?
London-based investors are heading further afield
Inflation and rising interest rates are increasingly turning London properties into those with the weakest returns. At the moment, London is experiencing some of the slowest property price growth in the country, so property in the capital no longer presents quite the opportunity it used to.
As a result, recent research has shown that London-based investors are looking outside of the capital to areas that offer better opportunities - many of which are in the North of England. Middlesbrough and County Durham are among the hot spots for London investors looking for more profitable opportunities.
Higher outgoings are eating into profits
This will come as no surprise, but rising interest rates are making it more difficult for landlords to make a profit. In fact, the typical landlord has seen their annual profits halve since the start of 2022 due to mortgage rates rising. When buy-to-let mortgage rates have been historically low for years, this is coming as quite a blow.
Of course, not every landlord has a mortgage but for those who do, they can expect their outgoings to increase when the time comes to remortgage as those low rates many have enjoyed over the past few years become a distant memory. And as many landlords utilise interest-only mortgages to help with their cash flow, rising interest rates are particularly bad news as these are among the mortgage products being hit the hardest.
It's not only mortgage payments hitting landlords and driving outgoings up. Inflation is affecting the price of maintenance costs, letting agent costs and insurance products such as landlord insurance. As a result, many landlords may feel forced to tackle maintenance jobs where possible, potentially leading to more issues.
When it comes to landlord insurance, landlords should be sure to compare landlord insurance policies to secure the best price for comprehensive cover. Whilst it may be tempting to reduce the level of cover to bring down the costs, landlords will only be left in a trickier situation should anything go wrong and they find they're no longer adequately covered.
Tenants risk being in arrears
It's not only landlords that are worrying about the pennies. Tenants, even more so in many cases, are feeling the mental and financial weight of the cost of living crisis in the UK. The Office for National Statistics has found that renters are in more precarious financial positions than those with mortgages as they were more likely to be behind on housing payments. With this in mind along with soaring energy bills, fuel costs and the increasing cost of food and home essentials, some tenants will be at risk of falling into arrears.
Rent arrears can quickly become a real problem. A landlord needs the rent paid in order to cover their costs whilst the tenant is racking up debt that they are finding it tough to tackle. Landlords should ensure that the lines of communication are open between themselves and their tenants so that any rent issues can be tackled as soon as possible before they become out of control. Not only this but perhaps put together a plan ahead of time on how you may be able to recover any missed rent payments - particularly if you have any tenants that you suspect may struggle to weather the storm. Landlords may be able to lean on rent and mortgage holidays as a short-term solution.
Good investment opportunities
For landlords still looking to spend during these times, the market may offer some good investment opportunities with house prices levelling off and the market starting to stall after the post-pandemic market chaos.
With mortgages being more expensive, the number of buyers out there house-hunting is reducing so sellers are more likely to be looking for a quick sale as a result which could mean dipping below the asking price. There could be a few treasures out there for landlords to get their hands on whilst taking advantage of the opportunity to secure a pretty good deal.
Whilst it all sounds a little doom and gloom, things may not be as hard as you expect during these turbulent times. Some landlords will inevitably feel the effects more than others. With inflation expected to start falling again towards the middle of 2023 and into 2024, we're hoping that hardships are short-term and that interest rates, the mortgage market, the property market and the cost of living will become more stable in due course.
