As we pass the midpoint of 2023, the ongoing financial crisis has seen mortgage rates reach their highest levels in 15 years, with few signs of stopping.

The impact of mortgage lenders withdrawing deals en masse and an increased cost of living on tenants and homeowners have been well-documented by market reports from property experts like Zoopla, but the unique challenges being faced by landlords as the market adjusts to a new status quo are less obvious.

With mortgage rates expected to rise even further soon, the importance of knowing what lies ahead for the housing market will be essential for investors of all financial shapes and sizes.  

If you’re a landlord who wants to know what to expect or a would-be buy-to-let investor, here’s a quick round-up of four ways this mortgage crisis could make an impact on your property portfolio.

1. Increased Mortgage Rates Means Decreased Liquidity

Starting with an obvious one, the increased mortgage rates for properties will have a lasting impact on everyone operating in the housing market whether they’re tenants and individual homeowners or landlords and property investors.

According to BBC News, the average five-year fixed mortgage rate in the UK rose to over 6% this month, causing no small amount of panic among homeowners. This panic has only been compounded by stagnant savings rates, which have stalled at a much lower average of 2.45%. With the relatively high number of over 400,000 Britons projected to have their existing fixed rate deals end between July and September, a wave of homeowners will soon find themselves facing an uncertain financial future with fewer worthwhile offers available when it’s time to refinance.

Zoopla’s Rental Market Report for June 2023 further evidenced that higher mortgage rates have impacted 20-30% of existing landlords with the highest loan-to-value (LTV) mortgages, leading to sales concentrated in high capital value, low rental yield areas like London and the South East, where refinancing is an especially unattractive option.

For certain landlords, rising mortgage rates bring several direct threats to their passive income.

Those who have relied on the tried and tested strategy of paying off the mortgages on their properties with rental income from tenants, for instance, may need to reevaluate the amount their renters are paying to fully cover the interest from inflated rates. The risk of significantly raising rent prices or evicting tenants in the current market, however, could lead to costly void periods where rental income is not being accrued while mortgage rates continue to climb.

Smaller-scale landlords, much like homeowners, may find themselves priced out of their properties by mortgage rate hikes, forcing them to sell properties or exit the rental market entirely to protect against losses due to their increased sensitivity to market fluctuations.

Creating a more diverse portfolio full of recession-resistant assets could be a way to weather the storm of mortgage and interest rate increases for those who have the investment capital or fungible assets available, but for many others, the turning tide of the UK’s property market could mean a serious hit to their profits.

2. Higher Cost of Living for Tenants Affects Rental Income

As the only major economy where inflation is increasing instead of falling or stagnating according to data from the Organisation for Economic Cooperation and Development, the UK is currently in a position that may leave all kinds of financial stakeholders feeling uneasy.

For renters and tenants, the resulting increase in cost of living has been sorely felt throughout the year and cost of living payments have only done so much to help against rising bills and rental costs. As the cost of living crisis continues to complicate the rental market, landlords may find even their more reliable tenants might struggle to juggle timely payments with other financial responsibilities.

There may be a temptation to ratchet up rental costs, but landlords who want to avoid any obstacles to their passive income in the long term should meet tenants halfway in times of economic downturn. In that spirit, landlords who want to successfully navigate the mortgage crisis without worsening their relationships with their tenants should:

  • Ensure that any rent rises are fair, in line with local prices and well-explained
  • Examine existing tenancy contracts for rent review clauses and act accordingly
  • Be open to discussing and negotiating rental payments with your tenant(s)
  • Help tenants explore options for affording any rent or cost of living increases
  • Be aware of laws regarding Section 13 rent increase notices and their validity
  • Be aware of laws regarding Section 21 eviction notices and their validity
  • Be aware of upcoming changes to the rental market proposed by the Rental Reform Bill

Failure to establish or maintain a healthy working relationship with renters could motivate them to bring their rent disputes to a tribunal, which could be both time-consuming and costly depending on the decision made. To read more about the challenges facing both landlords and renters and the Rental Reform Bill, you can read Business Development Manager Adrian Felix’s opinion piece.

3. Falling House Prices Could be a Blessing in Disguise

The mortgage crisis may largely be a cause for concern for many in the housing market, but it may also bring certain opportunities to light for others.

According to Halifax’s recent House Price Index, June 2023 saw property prices fall by 2.6% – the biggest decline since 2011 and the latest in a three-month fall in average UK house prices.

While these figures have led to an overall decline in the lack of available funding for property purchases and negatively impacted housing demand due to affordability concerns by buyers, those with the available capital could use record price falls to expand their portfolio.

According to Zoopla, properties in the South East of England are experiencing a particular fall in value, with 4 in 10 UK homes registering a price fall over the last 6 months. Zoopla also suggests that buying power in the housing market could fall by up to 20% if the mortgage rate settles at 6%.

Existing and prospective landlords who are willing to buy and hold these properties until the market stabilises will likely enjoy long-term profitability, especially if buying power does fall in the coming months. This approach may not be of use to everyone, but the recent trend of cash purchases in the London housing market shows that high-liquidity investors are seizing the opportunity offered by the mortgage crisis.

4. Mortgage-Free Property Investment May be More Appealing

Mortgages may be a route for investing in a traditional property, but landlords who are interested in alternative investments may find that mortgage-free property may be the perfect solution to building a property portfolio in an otherwise inhospitable housing market.

At Concept Capital Group, we specialise in creating investment opportunities in affordable housing through modular construction. Each of our bespoke units can be manufactured and placed at one of 123 sites across the UK within 60 days of purchase, giving investors quick access to an assured monthly rental income at a fraction of the price of traditional buy-to-let housing.

For a single upfront cost of £42,999 per unit, you can unlock a fully-managed, high-yielding rental property that will net you 10% of your investment in passive income every year. That’s a minimum of £4,299 a year with no hidden fees, no time-consuming landlord responsibilities and, most importantly, no mortgage required. We handle the maintenance, send your rent directly to your account and source pre-approved tenants so you can collect your passive income without having to worry about any market turbulence or void periods.

If you’re a property investor who’s interested in fully avoiding the pitfalls of the mortgage crisis, contact our team today for a quick consultation.

Concept Capital Group

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