Avoiding the Pain of Mortgage Interest Rate Hikes as a Property Landlord

Nearly every landlord can empathise with the pain of mortgage rates shooting up – devoid of their own control.

Needless to say, interest rates are a significant concern when purchasing a property. A lower interest rate makes for lower mortgage payments, while higher rates can make it challenging to even find an affordable monthly payment. 

The problem is, as mortgage rates hike up across the UK, USA, and Dubai, property landlords who are running a standard tenant portfolio (where margins are only between £300 and £500 profit per month), are guaranteed to be hugely impacted – and it’s not going to be pretty.

So, as the current market rates become more “dramatic” than ever (internationally), the biggest question is, how can you as a property landlord avoid the pain of this massive hike and ensure you remain on healthy grounds?

Read on, as we’ve covered it all in today’s article.


The Frightening Current Market 

To get an accurate grasp of the current situation, it’s important to understand the basics of inflation first. This is because when inflation is too high, a rise in interest rates is what swoops into “control” it. 

In layman’s terms, inflation is the word used to describe the increase in the price of goods and services over a period of time – this is measured by economists who use a price index to look at price changes across a number of different things (including mortgage rates). 

There are numerous different indices (CPI-U is one of the most popular), some of which use slightly different price indexes, but the general consensus remains the same.

As it stands, the current inflation rate is frightening. Considering that the world is just coming out of a pandemic, this comes as no surprise – and then there are also factors like an increase in household demand, supply-chain shortages (again, due to COVID-19), the war in Ukraine, and the presence of a strong labour market. 

By June 2022, price increases were witnessed across multiple categories; but some of the biggest hikes have occurred in gasoline, food, and shelter (yes, mortgage rates included). These are the major categories that make up the CPI (Consumer Price Index) – so if you’re wondering why your monthly income isn’t stretching as far as it used to, and why your mortgage rates are shooting up at the end of your fixed term – then that’s the reason why. 


The Rising Rates Across the World 

On September 22nd, 2022, the Bank of England (BOE) raised the base rate from 1.75% to 2.25%. This was widely anticipated as the annual inflation rate sat at 10.1% – the highest it has been for 40 years. Back in September, BOE predicted that the inflation would continue to rise by another 11% across the end of 2022 – and with the way the numbers are looking in the UK, property landlords are clawing onto their portfolios with both hands. 

Unfortunately, the situation is no better across the USA, as a recent article from states that US mortgage rates have risen to 6.29% – the highest in 14 years. This is shocking when you consider that a year ago, American homeowners enjoyed an interest rate of only 2.88%. 

According to the Khaleej Times, Dubai’s real estate market could remain “unfazed” despite the mortgage interest hikes – however, the same article also warns that this increase may impact future demand and slow the growth of the market. 

Safe to say, inflation will continue to rise on an international scale – given how the current economic market is looking.


What do the Higher Rates Mean for Property Landlords?

It’s already been predicted that the number of landlords who will struggle to keep up with their mortgage payments will rise dramatically by 2023. 

As a buy-to-let landlord, this is how the rising inflation will affect you:

> If you’re buying properties, you’ll have to factor in the higher cost of higher mortgage repayments.

>  If you move to a standard variable rate at the end of a fixed deal, you’re likely to see a massive rise in your mortgage costs 

> Your profit margins (off the back of renting out) will be significantly impacted. 

Factor in things like void periods and unexpected costs into the mix, and the hike in mortgage interest rates has the potential to burn deep holes in your pockets – and a massive dent in your property portfolio. While there’s little we can do to control global inflation, there are certainly some ways you can tackle the rising rates. 



Eradicating the Steep Financial Loss Caused by Increased Rates

There are two ways this situation can be tackled.

The first, the official Rent Guarantee service provided by Luke Capital Group. While this solution doesn’t increase your monthly rental income, it does guarantee no void periods and fixed monthly rent (without fail) as soon as you rent your property to us.

So, the money you would normally lose during the inevitable void periods (around 2-3 weeks on average per year, according to industry statistics), you would put towards managing the rising interest rates. The biggest value-add with LCG’s Rent Guarantee is that it’s available for up to 8 years, so as a property landlord, you would naturally increase your profit margins over those 8 years – without any void periods.

The second and perhaps more financially rewarding solution (albeit for the more adventurous) is Luke Capital Group’s Short-Term Rental Management service. For a small fee, we will fully manage your property and host it out as a short-term rental to guests and travellers. This could easily see your rental income increase up to four times – as we have been running short-term rentals for many years (for many property landlords) and are officially the most trusted brand in the industry to run this kind of operation.

The short-term rental management solution is a smart and creative way of dealing with mortgage interest rate hikes – and coming out unscathed. Given the current state of the market and where the economy is heading – it’s wise to start embracing these creative strategies now or drown in a pool of unmanageable costs and bills. 

To get ahead of the game and survive another historic inflation rate, get in touch with our team directly about either our Rent Guarantee or Short-Term Rental Management solutions, and we’ll be more than happy to help.