Please note: this blog does not constitute financial advice. I am a Landlady and Property Developer and I speak only from my own personal experience. Always seek advice from a qualified financial advisor on long-term financial decisions, and a mortgage broker in relation to your mortgage renewal.

 

There’s been a whole lot of talk about rising interest rates in the news of late. If you’ve recently got your first mortgage or had to re-mortgage then you’ll no doubt know all about it because those rates are CRAZY at the moment.

I’ve had countless tales of family mortgages going up by £200, £300 even £500 per month, and as a landlord with multiple properties, you can imagine the effect it’s had on me too.

I’m a solutions person at heart and I use this platform largely to provide tips that can help people to save money or manage their homes or lettings businesses. Whilst there’s not a great deal that can be done to avoid the hikes, I have developed some approaches myself to manage the fallout that I’d like to share with you in this blog.

So firstly, why are interest rates so high?

Bank interest rates are influenced by the Bank of England base rate which we discussed in this blog: ‘Let’s talk mortgages and interest rates‘.

In short, the Monetary Policy Committee (MPC) set the base rate with the goal of keeping the economy stable.

When the MPC want to encourage spending (say, after the 2008 recession) they will bring the rate of borrowing down. A lower rate of borrowing means people with have more money to spend – helping the economy to recover quicker.

Given the current situation with the cost-of-living crisis, you’d think the same would be true now but it’s not! Inflation has been out of control (due to various things but namely Covid and the war in Ukraine), and the MCP’s argument is that it can only be brought under control by kerbing spending (seriously though, who’s spending right now?!).

By making borrowing so much more expensive, fewer people have spare cash to spend which will force prices down (less competition = more competitive prices). And so, we find ourselves here, as of July 23, with a 5% base rate (with some forecasts expecting it will get to 7% before it starts to come back down). The Bank of England forecast a more ‘normal’ rate of 3% by the end of 2025 in their May monetary policy report.

The first thing to understand is that interest rates are not massively higher than they have been historically. Between January ’99 and March ’09, the rate varied from 6%, down to 3.5% and then back to 5%. However, the 2008 recession forced the base rate down to a teeny 0.5% where it remained for many years. So anyone who’s taken a mortgage out between 2009 and 2022 will have had their interest rate influenced by a much lower base rate than what’s typically considered ‘normal’ and will now be feeling the difference when renewal time comes.


Bank rate 2000-2023. Source: Bank of England

Well, that’s the extent of my economics lesson for today! On to the practicalities…

What to do about rising interest rates and your personal mortgage

I’d LOVE to have a magic tip about how you can manage rising interest rates. Unfortunately, there is really very little that can be done – they’re rising and they’re going to continue to rise.

Above all else, the best advice I can give you (and I can’t emphasise this enough) is that you must be prepared.

You need to be looking months, even years ahead of when your mortgage renewal is due and budgeting for the increase right now, because it’s not going anywhere.

What to do if your mortgage renewal is due in the next 6-12 months.

Speak with a mortgage broker NOW. You need to know where you stand and plan ahead. Leaving it right up until the renewal is due is the worst thing you can do. Speak with a broker and find out where you stand. Only then can you plan properly, with all of the information in front of you.

What to do if your mortgage renewal is due in the next 1-3 years.

So you don’t need to renew your mortgage for a few years – great. But don’t assume that the current interest rates will have dropped significantly by that time because they likely won’t.

You need to:

  1. If we assume the base rate will be at around 3.7% by the end of 2025 (based on The Bank of England predictions shown below), then you can make a very rough estimate of the ballpark extra you’ll be paying. This mortgage calculator looks like a useful tool to get a rough idea. (note that it’s only an estimate).

Source: Monetary policy Report May 23

Once you have an idea of what the increase will be, you can plan…

  1. Start putting a little extra into your mortgage now each month if possible. If you can put the full excess in then fantastic! But that’ll be hard for many right now. But paying anything extra you can each month will get you used to the extra money out of your budget going towards your mortgage, and will bring your mortgage down at a quicker rate meaning the increase will be less than it should have been.

 

  1. Speak to a mortgage broker at least six months before you’re due to renew.

 

What to do about rising interest rates and your property portfolio

As landlords with multiple properties, this problem is only going to be exacerbated. As a generally optimistic person, I will confess that this has brought about the biggest challenge to my business that I’ve seen in my 20 years of being a landlord.

So here’s how I approached the changes…

Prepare prepare prepare! I’m a sucker for a spreadsheet! And I have one that lists every property, every mortgage renewal date and rate and all the financial information about that property. Being able to forecast extra charges well in advance has been imperative for me to make good decisions about how to proceed. If I have a mortgage due for renewal, I’ll speak with my broker at least 6 months in advance.

These are some of the changes that I’ve considered, am considering, or have made that might work for your portfolio…

  1. Diversify your portfolio. Could a property be put to better use as a HMO or air bnb? My passion is providing family homes personally, but this is something I have given much thought to as a last resort should I need to raise additional funds.
  2. Raising rent. No doubt any of my tenants (or any tenants) reading this won’t agree with the suggestion but keeping rents in line with market value is how landlords can keep up with their own rising costs. I personally still aim to keep my properties lower than the market value – I like that I’m providing affordable rental properties and I know that by being fair in this way I’m getting the very best back from my tenants so the properties are well looked after. But I still raise the rent when I need to in line with what the market is doing. My approach to this is always based on a high level of communication and plenty of warning (another reason for my trusty spreadsheet!)
  3. Sell property that doesn’t bring a strong return. If a mortgage renewal is going to make keeping a property financially unviable, letting go might be the best course of action.

 

I’d love my blog this month to have more proactive tips, but that’s 2023 for you. If you’re struggling with your mortgage renewal always speak to your lender as a first port of call. I actually worked with a family recently who were going to sell their house to me because they couldn’t afford the mortgage increase. I worked with them and their lender to get a better deal which meant that they could stay in their home (what a great day in the office that was!).

These are other places you can turn to if you need help with a mortgage renewal increase:

Shelter

National Debtline

StepChange

 

Please note: this blog does not constitute financial advice. I am a Landlady and Property Developer and I speak only from my own personal experience. Always seek advice from a qualified financial advisor on long-term financial decisions, and a mortgage broker in relation to your mortgage renewal.

 

I’m Joanne. I’ve lived and breathed property for longer than I care to remember! This blog provides advice and support with problems surrounding property, and life in general.

 


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