As a landlord in Portadown, you know the costs of owning a rental property can add up quickly. From mortgage payments to insurance and maintenance fees, it's essential to plan and budget accordingly. In recent months, mortgage costs have risen significantly, leaving many landlords wondering how this will affect their bottom line. In this blog post, we'll discuss the current trends in rising mortgage costs and what Portadown landlords need to know to stay ahead of the game.
After Kwasi Kwarteng’s controversial mini-budget in September under Liz Truss’ short-lived reign as prime minister, some of the UK’s biggest lenders reacted by taking their deals – including buy-to-let mortgages – off the market.
In the aftermath of the pound falling, the lenders pulled their products from the market to ensure prices were sustained with the level of inflation.
This was also a play to ensure their own funds were secure and that, ultimately, they had solid foundations to stand on regardless of what happened to the market.
At present, many lenders are still considering how much business to take on. The considerations will be based on the risk of being overwhelmed if they launch their rates lower than competitors. For lenders, volume and service are key factors when it comes to mortgage lending.
What will the market look like when mortgage deals are fully restored?
While mortgage deals are now returning, average rates are much higher than before. It’s predicted that rates are unlikely to fall to more normal levels until April 2023 at the least.
If you’re a landlord on a variable rate buy-to-let mortgage; chances are you’ll already be feeling the pain due to increases to the base rate over the last year – up from 0.1 per cent in December 2021 to 3 per cent in November 2022. And these increases will be felt hardest by those on interest-only mortgages – which account for about 90 per cent of buy-to-let loans.
For example, if you have a £150,000 mortgage over 25 years, if you’re on a rate of 2 per cent your monthly payments would be £250 on an interest-only mortgage. This would then equate to £636 on a repayment mortgage.
On a buy-to-let mortgage rate of 5 per cent, however, this rises to £625 for an interest-only mortgage and £877 on a repayment mortgage.
Therefore, Portadown landlords who are looking for a new buy-to-let mortgage, or who need to remortgage after coming to the end of a fixed deal, will face significantly higher rates compared to earlier in the year.
What will higher buy-to-let mortgage costs mean for the Portadown rental market?
Not only will increased lending costs hit Portadown landlords, but the impact will also have a knock on effect with the rental market.
It is expected that some landlords will increase rental figures in order to cover the higher costs of repaying a buy-to-let mortgage.
Another factor of the rising costs relates to maintenance. Higher costs to keep a property means some landlords may feel squeezed when it comes to carrying out non-essential repairs, upkeep and maintenance.
As challenging as times may be, however, we would strongly discourage any substantial cost-cutting be made from this area. Protecting both your tenants and your rental property is crucial, and will also keep you on the correct side of the law.
Something to keep in mind is that it’s no surprise tenants are struggling in this cost of living crisis. Recent findings from Zoopla showed that the average single earner can now expect to spend 34.4 per cent of their income on rent. But according to the Office of National Statistics (ONS), a property is deemed affordable if rent makes up 30 per cent or less of a household’s income.
This is where communication with tenants is vital, whether you do carry it out first-hand or through your managing agent. Costs and finances can always be difficult conversations, but it is better to be for all parties to be open and transparent with each other. Not only does this sustain trust built with your tenants, but it can allow you to understand their situation better and avoid any nasty surprises in the event they struggle to pay any rent.
Should Portadown landlords sell up?
Believe it or not, it’s a question that’s been posed to us by multiple Portadown landlords now. With the rocketing buy-to-let mortgage rates, some landlords will see no choice but to sell their properties and exit the rental market altogether, as they believe it is no longer feasible from a business perspective.
However, the more landlords that sell up, the greater there is for demand in rental properties – of which is already remarkably high. This in turn will create a further squeeze on rental figures, making it more and more difficult for prospective tenants who are not in the circumstances to purchase their own home.
There is already a significant shortage of rental properties, especially in Portadown and Co. Armagh as a whole. Any further shortages would lead to a dire housing situation for those unable to get onto the property ladder at present. Given the new build construction targets aren’t making for satisfying numbers either, there is the real possibility of a serious squeeze on finding homes for everyone in the coming months.
As we know all too well, the property market cycles. One moment it will be healthy and flourishing, the next it will feel stagnant and unviable. The key to succeeding in property investment is to be determined, and ready to ride out any challenges but also having an exit strategy in place.
We understand that every Portadown landlord will have their own different circumstances relating to their property portfolios, regardless of size. If you need any advice, or perhaps some time being given back to you through the management of your properties, we will always be here to help with transparency and open communication. For more information, drop us a call on 02838 355100 or email us at info@orchardlettings.com
