Buy-to-Let Rate Hikes: Expert Options if You're a Landlord Facing Higher Mortgage Costs

If you’re a landlord with a fixed-rate mortgage nearing the end of its initial term, you’ll only be too aware of the coming increase in your monthly repayments.

Back in October 2021 and 2018, two and five-year buy-to-let fixed rates averaged around 3%, but they're now switching to today's rates of more than 6% - a substantial jump!

This rate hike has caused many landlords to sell up, and you might be thinking of doing the same. However, before pulling the plug on your investment, there are some options to explore, including:

• Renovating and reletting

• Increasing the rent

• Using falling house prices to expand

• Creative debt reduction

• The consequences of selling up

So, if part of your reason for being a landlord is future financial security for you or your family, you'll find plenty in this week's blog to help you make the best decision for you.

RENOVATE AND RE-LET

Many rental homes never reach their full income potential because they don't attract the highest-earning tenants, so it’s worth exploring whether you can boost your income.

• Speak to local letting agents about the highest rents being achieved for homes similar to yours, and why they achieved it.
  
• Things like kitchen upgrades, a powerful shower, better flooring, new decor, improved insulation or increasing the number of bedrooms all add to the rental value.
  
• Make a budget for the work you intend to do, including materials, contractor costs, how long your property will be empty and how much mortgage you’ll be paying during that time.

For detailed inspiration on elevating your buy-to-let to the most stylish, modern and profitable home it can be, take a look at our blog on Rental Upgrades.

INCREASE THE RENT

Despite rents soaring in the last couple of years, many landlords have frozen the rent for existing tenants to prioritise stability. Of course, this can be a smart business move, but not if it ruins your own finances.

Talk to local letting agents about the current rental value for properties like yours, and bear in mind that the laws for rent increases are different in England & Wales to those in Scotland and Northern Ireland.

• In Scotland, as well as rules about how much you can increase the rent each year, there are rent pressure locations where further restrictions apply.
  
• In England & Wales, if the tenancy is still within its original fixed term, you cannot increase the rent, but once it moves onto a rolling contract, you can increase the rent once a year.
  
• In Northern Ireland, some fixed-term tenancies include rent review clauses, and new laws have been passed restricting increases to once a year on periodic tenancies.

Rent increases are always sensitive, but you can make them easier by offering more security to tenants you want to keep, perhaps by offering to freeze the rent for two years after the increase kicks in.

And remember: you serve no one if you can't afford to keep your buy-to-let and need to sell, because removing it from the rental market only makes it harder for tenants to find a home.

USE FALLING PRICES TO EXPAND

Have you ever heard the poem that includes these lines? “If you can keep your head when all about you are losing theirs… yours is the Earth and everything that’s in it.”

While Rudyard Kipling wasn’t writing about the trials of being a landlord, it’s sound advice for looking beyond short-term ups and downs in favour of long-term thinking.

• The combination of falling house prices, rising rents and some landlords selling up means that buying now comes with higher yields, reduced competition, and greater demand.

• Rather than doing everything alone, consider teaming up with trusted friends, family or business associates to boost your buying power and share the work.

• Talk to a financial advisor about releasing equity from any other properties you own with little or no mortgage to use the funds as deposits for more buy-to-lets.

Yields haven’t been this high for years, so buying up rather than selling up will give you immediate results as well as long-term security.

GET FINANCIALLY CREATIVE 

Landlords can’t control buy-to-let mortgage deals, but you can explore ways to soften the blow of higher interest rates and make your rental homes more profitable and sustainable. Possible solutions include:

• Using your savings to pay down the outstanding balance to either reduce your monthly payments or refinance with a smaller loan-to-value ratio.

• Finding a business partner. They say a problem shared is a problem halved, and you may know somebody who would like to get into buy-to-let without doing it alone.

• Putting more income aside in a high-interest, easy-access savings account to use as a financial buffer when your mortgage rate increases.

• Looking at your other costs like building insurance, landlord contents cover, rent protection, maintenance contracts and accountant fees to see if you can find savings.

It’s surprising how a thorough review of all your outgoings can provide multiple opportunities to make your business more viable and comfortable to run every month.

ARE YOU BETTER OFF SELLING UP?

Many landlords have exited buy-to-let, but we’re not sure it’s always the best move. Costs like Capital Gains Tax and selling fees eat into profits, while few other investments are as stable as property.

However, if you do decide to sell, we’ve listed your most likely options below.

• The most straightforward solution is to sell your property to either your tenant or another investor who’ll buy it with your tenants in situ - plenty of private landlords are still expanding.

• For selling on the open market, ask your tenants if they’ll allow viewings without being given notice yet. This will help you maintain your income in case it takes a while to find a buyer.

• The least-best option would be to give your tenants notice, at which point you have the right to carry out viewings, but they could end up leaving before you even have an offer.
  

If you’re considering selling your rental home in Benfleet or Basildon, talk to us first. We may be able to help you boost your income, or we could have another landlord who'll buy your property straightaway.

Are you weighing up your future as a landlord?

There's a lot to think about right now, and having a sounding board for all your thoughts and concerns can help you find some clarity - so why not use us?

Call us on 01268 944104 or message us at lettings@vesta-essex.co.uk for a no-strings chat about everything and anything landlord.