Although recent research by Deloitte shows UK consumers are feeling more upbeat about their personal finances, we’re still prioritising essential spending over splashing out on luxuries. That’s reflected in the challenges retail and casual dining sectors are still reporting.
Nevertheless, forecasters are still predicting interest rate rises, with the first possible in the next announcement from the Bank of England. Schroders expects the Bank to raise interest rates once in 2018 and twice more in 2019, taking it to 1.25%, predicting 2018’s rise to come in November. Meanwhile, EY ITEM said in April that it’s likely rates will go up twice this year and twice again in 2019.
That means landlords need to prepare themselves for mortgage rates to follow suit so, if you haven’t done so already, speak to a broker to find out if it’s wise to switch to another product now.
A record 91% of landlords are currently on fixed-rate deals. That’s most likely due to all the tax and legislation changes in recent years having pushed up costs, while stagnating wage growth has meant landlords haven’t necessarily been able to raise rents to cover the increase in outlay.
Mark Carney, the Governor of the Bank, has admitted a rise this year is indeed “likely” but that any increases will be gradual. That’s little comfort to landlords, particularly those in the higher-rate tax bracket, whose profits are already being hit by the withdrawal of mortgage interest as an ‘allowable expense’. Rising mortgage interest rates – even small ones – will mean even lower returns in the future.
All in all, it looks as though landlords’ finances are going to continue to be squeezed for the foreseeable future, so it’s more important than ever to make sure you’ve got your figures straight and are keeping your tax liability to a minimum.
3 key steps to take now:
- Check the terms of your current buy to let mortgages – when do the products expire and what are the penalties for early redemption?
- ‘Stress-test’ your figures to make sure you know the impact of a 1% interest rate rise, which could well happen by the end of 2019.
- Speak to a specialist buy to let mortgage broker, who can advise you of the most suitable available mortgage product that can help protect your profits.