Being based in London has allowed us to help a large variety of different buyers over the years. From first-time purchasers buying their first nest to property developers needing a loan to construct large multi-unit apartment buildings. One of our specialties in the mortgage market is buy-to-let mortgages and helping portfolio landlords with a large dossier of rental properties.
For a long time, it was understood that investing in property was a great source of income and a wise way to ensure that your money is being wisely used. However, recent research shows that due to the recent financial crisis, many portfolio landlords are considering selling their rental properties. Is this a wise move, or is there still hope for the buy-to-let market?
Landlords Selling Their Properties
Mortgage broker forum Cherry have released data collected from mortgage brokers across the country that suggest that more than a quarter of landlords are currently considering selling properties if and when a recession takes hold of the UK. According to Property118, there are currently around 6.5 million people who would be classed as landlords in the UK currently, so that means that around 650,000 landlords could potentially sell their properties. The website also says that London, where our office is based, has by far the highest number of landlords at 463,200.
Cherry’s research specifically says that around 28% of landlord clients are planning to sell properties, while 39% (around 2.5 million) of buy-to-let investors say they will increase rents. Just over a quarter of landlords plan to make no changes to their investment in the current climate and only 3% intend to buy more properties.
Why Are Landlords Considering Selling Their Rental Properties?
In our eyes, there are three main reasons that we think buy-to-let landlords are potentially considering selling their properties or holding off on expanding their portfolio for the time being.
- Rising interest rates
- Energy performance certificate rules
- Saving money in a turbulent economy
Rising Interest Rates
If you don’t know by now, interest rates have increased significantly. In the last two months, we have seen buy to let rates raise from 2-3% to 6-7% and residential rates aren’t any better. Mortgage lenders have also been increasing their buy-to-let mortgage stress tests meaning that more rent and income is required for lenders to lend mortgages to buy-to-let investors. Much more than was required before.
For landlords who have their rental properties on a fixed deal for a few years, you shouldn’t need to worry too much. However, for those who have their fixed deals ending within the next few months or within the next year, you could be seeing your monthly mortgage payment increasing significantly. For those who have tracker mortgages, this also means you! Because of mortgage rate increases, a lot of landlords have either already or are planning to raise their rent to ensure that owning the property is still profitable.
But, for many the profit margin may become so small that they consider the property not worth owning anymore. For example, if your mortgage goes up to £1,000 a month and your rent is £1,300 a month then your profit is a maximum of £300. But if your insurances, utility bills, estate agent fees, maintenance of the property, taxes etc add up to over £300 a month, your property is actually costing you money.
EPC Rule Changes
By law, every rental property has to have a valid EPC (energy performance certificate certificate) to ensure that the property is energy efficient. As of 2020, every rental property must have an EPC rating of C or above and by 2025 this will be enforced by law. Although most landlords are conscious about making sure their properties are in the best shape possible but for some, the costs of updating and improving their properties to meet the C grade rating can be very expensive. Some landlords may see the costs of upgrading their properties to be too much and may think that cutting their ties and selling up might be a more beneficial thing to do.
Saving Money In A Financial Crisis
Being a landlord can be a very lucrative business and people can build a very strong and profitable portfolio of property, but there seems to be a misconception that all landlords are wealthy. For many, the cost-of-living crisis and economic crisis as a whole will hit hard. And for landlords who own several properties, they may be struggling to make ends meet. So, some may be considering selling one or more of their properties and using the liquid cash to fund their living during a tough recession.
Should I Keep My Rental Properties In A Recession?
No matter what you may be hearing in the news, owning property and investing in property is still a very wise decision and a great place to be in. Even in a recession. Property, especially rental property, is still in high demand across the country. Unfortunately, the changes to mortgage rates, the cost-of-living crisis and various other factors are meaning that people are struggling to buy residential property or are having to wait a few more years to purchase. But that is good news for landlords as the demand for rental properties is increasing, especially in places like London.
As landlords, you may need to make tough decisions like raising your rent but if it is a necessity so that your investment can still make you money and you can still provide your tenants with a place to live, then your investment can still be a profitable venture. If you are worried about interest rates going too high for you to make a profit, the best thing you can do before going to the extremes of selling up is to speak to a mortgage advisor like us at Oportfolio.
Our specialist buy-to-let mortgage brokers will be able to look at your current mortgage deal, the rent you receive, the costs of the property, and then carefully calculate what you need to do. That could be a re-mortgage and re-structure of your current loan, a product transfer to another more beneficial mortgage product or simply re-calculating your income and outgoings for the property so that your costs are lower and your profit increase.
Speak To A Specialist Buy-To-Let Mortgage Broker
Owning property, whether that is a single buy-to-let or a large property portfolio, is still profitable and a great way to invest your hard-earned money. We are always here to help anyone who needs some guidance around their rental properties, so feel free to give our team a call now if you have any questions or concerns.