What are YOU going to do when mortgage interest rates have reduced your rental profits to zero?
There seems to be little doubt that interest rates will only be heading upward in the next few years. If you disagree with this please share your thoughts with me.
So, I’ve been running some numbers and scared myself half to death. If interest rates go up another 2% I will not be making any profits from my rentals at all.
Put your rents up I hear you cry.
Well, that may or may not be an option. As far as I know, my tenants don’t have magic money trees in their (or should I say my) gardens either!
Get a job I hear you say. Well, I’m 73 years old and disabled, so that might not be too realistic either.
So what options do I have left?
Sell up? Well, maybe, but the Capital Gains Tax would be horrendous and where am I going to find buyers with mortgage rates at this level? Are first-time-buyers going to buy at a point we are about to enter a worldwide recession and mortgage rates have risen sharply and are set to rise further?
I do have some savings, but they will only tide me over for a year or so, two years at best. I’m hoping to live a lot longer than that!
But it gets worse!
Not only will I be making no money but HMRC will not see it that way.
How come you might well ask.
Well as I understand it, HMRC do not allow me to treat my finance costs as an expense. In their eyes, I am still making a profit and they are going to expect me to carry on paying tax even though I have no money.
How is that going to work?
I’m OK for now but I am predicting a financial armageddon scenario within the next year or two.
Any ideas clever people?
Regards
George
Response from the Property118 Tax Team
Hi George
There are hundreds of thousands of landlords asking themselves the same questions right now. They don’t know which way to turn either.
Thankfully, you’ve come to the right place. We specialise in solving problems just like yours. We don’t have a magic cure-all pill, we certainly cannot control interest rates for example, but there may well be ways we can help you to solve your tax problems. Our founder (Mark Alexander) recently wrote an article on this very subject. If you missed it you can read it via this link.
Your age might be a blessing in disguise because there is at least one mortgage lender offering ‘later life’, lifetime buy-to-let refinancing that allows interest to be rolled up as opposed to interest being serviced monthly. That might be the saviour you’re looking for to solve your cash flow issues.
The starting point is for you to book a Landlordlord Tax Planning Consultation using the form below.
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Are letting agents playing fair with their fees?
Member Since June 2014 - Comments: 1562
8:48 AM, 27th October 2022, About 3 years ago
“If interest rates go up another 2% I will not be making any profits from my rentals at all.”
If you can’t withstand a 2% interest rate rise you shouldn’t be doing this.
(How on earth did you pass the mortgage lenders stress tests anyway??)
Member Since June 2014 - Comments: 1562
8:57 AM, 27th October 2022, About 3 years ago
“Put your rents up I hear you cry.
Well, that may or may not be an option. As far as I know, my tenants don’t have magic money trees”
Any competent landlord would have found that out before taking them on.
Is this a wind up/advertising blag?
Member Since January 2015 - Comments: 1435 - Articles: 1
10:23 AM, 27th October 2022, About 3 years ago
As with any business if you’re not making a profit get out. Realise your assets, if any.
Possibly think long term, 10 years, if considering staying in PRS. Property has appeared to go in 11 year fluctuations – well has as far as I can see for the last 40 years.
Luckily I have never had a mortgage on my rental properties and its the tenants and unreasonable legislation coming that has seen me virtually out of the PRS
Member Since July 2013 - Comments: 23
10:30 AM, 27th October 2022, About 3 years ago
Reply to the comment left by Monty Bodkin at 27/10/2022 – 08:57
Planted question to promote one of their services is my guess
Member Since January 2011 - Comments: 12193 - Articles: 1395
12:09 PM, 27th October 2022, About 3 years ago
Reply to the comment left by David Griffith at 27/10/2022 – 10:30
Thanks for that guys!
Member Since October 2013 - Comments: 1630 - Articles: 3
12:48 PM, 27th October 2022, About 3 years ago
Reply to the comment left by Monty Bodkin at 27/10/2022 – 08:57
These sites are meant to offer help and advice to landlords, not uninformed criticism.
This may well be an ‘infovert’, but there are many landlords who are already facing stark choices, or have simply had enough. Capital appreciation may have been destroyed through leasehold issues e.g. cladding (landlords may also now face huge remediation bills), meaning negative equity and potentially bankruptcy; arrears may have depleted reserves which could have been used to ride out these mortgage rises; etc…
So, please, before you make off-the-cuff comments, try to understand others’ situations.
Member Since January 2020 - Comments: 1102 - Articles: 1
12:56 PM, 27th October 2022, About 3 years ago
Reply to the comment left by Monty Bodkin at 27/10/2022 – 08:48
Don’t forget that another 2% increase will be on top of the 2% + increase since last December and when combined with the impact of S24 it is perfectly possible that the stress tests at the time when the mortgages were taken out would have been satisfied.
The question highlights a very real problem for many landlords with tracker mortgages or who are coming to the end of fixed periods and will soon need to remortgage or be moved on to SVRs.
Member Since June 2014 - Comments: 1562
1:04 PM, 27th October 2022, About 3 years ago
Reply to the comment left by NewYorkie at 27/10/2022 – 12:48
“uninformed criticism”
Questioning why a landlord’s business model can’t withstand a 2% rise in interest rates is “informed” criticism.
Member Since July 2013 - Comments: 23
1:17 PM, 27th October 2022, About 3 years ago
Reply to the comment left by Mark Alexander – Founder of Property118 at 27/10/2022 – 12:09
Always pleased to help – keep up the good work.
Member Since January 2011 - Comments: 12193 - Articles: 1395
1:19 PM, 27th October 2022, About 3 years ago
Reply to the comment left by Monty Bodkin at 27/10/2022 – 13:04
I disagree and think you’re being overly critical of George.
Lending criteria less that a year ago was that rent had to exceed the mortgage interest on a five year fixed rate by just 25%.
In my opinion that wasn’t enough, but a lot of people fook the view that if the banks are happy then they should be too.
Rates at the beginning of this year were 0.1%. They are now 2.25%.
If we assume that George is paying say 1.75% over base he was paying 1.76% but would be paying 6% if rates were to increase by a further 2%.
That’s going to hurt a LOT of people.