UK interest rate changes: How buy-to-let landlords can stay financially resilient
According to projections by the Bank of England, interest rates are likely to come down to about 5.1% by the end of 2024, and reach around 4.2% in 2026. However, the sad truth is that we may never see a return to the 0.25% we enjoyed in 2016. If you have a buy-to-let mortgage and the term is coming to an end you might see an increase to your monthly repayments hundreds of pounds higher than you’re used to.
It’s clear, that the fluctuations in these rates and the change in the monthly repayment amount can significantly affect the operational costs and overall profitability of a business. Whether you have one property or a sprawling nationwide portfolio, it's important for landlords to keep an eye on changing interest rates and know what they can do when things start going in the wrong direction.
Understanding the impact
When interest rates rise, buy-to-let landlords with variable-rate mortgages may experience increased borrowing costs on a month-to-month basis. Likewise, landlords coming to the end of a favourable term might find themself switching to a much higher monthly repayment. These changes can eat into rental incomes and reduce overall profitability, forcing landlords to pass on the higher costs to their tenants or sell up entirely.
Conversely, falling interest rates can be great for landlords, as they can benefit from reduced mortgage repayments while rental yields remain stable. Freeing up money to make further investments or improvements to a portfolio.
Mitigating risks
To mitigate the risks associated with fluctuating interest rates, landlords can consider several proactive measures:
Audit everything: Landlords should regularly review their financial structures and mortgage arrangements to ensure they are well-positioned to weather interest rate changes. Are you on the best mortgage rate available? Is the repayment term optimised for the most affordable repayment? If you can’t switch your mortgage or lower it have you got a contingency if interest rates start to rise again?
Build financial reserves: Following on from that last point, it’s important that landlords have adequate financial reserves. These can help cover unexpected expenses or periods of reduced rental income until the balance is restored. Establishing a contingency fund can provide a buffer against financial shocks and help sustain cash flow during challenging times.
Make savings elsewhere: A well-run business functions best when it has safeguards around unexpected financial shocks. Buildings Insurance can be expensive, but not as expensive as suddenly having to find £20,000 for an urgent structural repair. Likewise, low-cost maintenance and care plans with YourRepair can be an effective way to safeguard against unwanted pest infestations, boiler breakdowns and electrical outages.
Stay informed: You don’t have to be a stock broker to take an interest in market trends, economic news and central bank policies. By keeping an eye on the Bank of England base rate and any new announcements around inflation or interest rates, landlords can anticipate any changes their mortgage provider might make to their repayments.
By understanding the implications of fluctuating interest rates, implementing proactive risk management strategies, and seizing investment opportunities, landlords can position themselves for long-term financial resilience and success.
Managing your buy-to-let mortgage requires effort and attention. So don’t let yourself be distracted by the hassle of boiler breakdowns, leaks or urgent repairs. Focus on the big stuff and let YourRepair maintain and protect the little stuff.
If you’re not already a YourRepair customer, we have specialist landlord & homeowner plans to suit every need and budget. Please click the link below and browse our fantastic care packages which are 1 month free for NRLA members!
