What are YOU going to do when mortgage interest rates have reduced your rental profits to zero?

If under normal circumstances you want to remain a landlord & assuming you don’t “need” the rental income to live off for the next 2years, if your overheads are covered after allowing for a 2% hike in bank base until G*d willing inflation peaks in 12-24mths time whereby bank base starts to slowly come back down (albeit don’t expect Covid low rates we enjoyed before & we don’t know when inflation & therefore rates will peak), then hold tight as hopefully over the longer term, you’ll get more capital growth & on route put up rents by small amounts incrementally, as don’t forget some tenants energy bills won’t be much higher if they’re entitled to the £650 cost of living means tested payment on top of the £400 discount. The risk on route however, is bank base goes up by more than 2% & property values short to medium term go down. Otherwise maybe consider selling a percentage of your properties that have the lowest capital gain through the likes of National Residential, if after allowing for sale costs, CGT & redeeming your mortgage borrowing, you come out with sufficient net equity to substantially reduce the borrowings on your retained properties. Having said this, for your CGT to be so high, I assume you’ve owned these properties for quite some while & I guess you must have re-mortgaged to capital raise at some point if your mortgage borrowing is high otherwise the loan to value would be relatively low? Also, although I appreciate putting up rents in this climate is not always a possibility, if your tenants are paying well below market rent or even below local housing authority rates, maybe consider small incremental increases, or serve notice whilst s21 still exists & remarket the properties whilst demand for rented properties & therefore rents are so high. Admittedly not a palatable exercise but it’s a case of needs must.

The background of Section 24 was that interest rates were very low and landlords were receiving good rental income from property. Section 24 was a way of the government sharing the profit with the landlords, but if due to the high interest rates, the landlords are not making any money, then there is nothing to pay and this can be tested in the courts.

There is also talk of not allowing companies to claim mortgage interest. If this happens everyone is screwed. How will this affect profits? The reason why so many private landlords incorporated was for tax efficiency. Looks like thats gone now. Getting tougher

Reply to the comment left by Monty Bodkin at 27/10/2022 – 08:48
@Monty Bodkin

I think you’re misreading the article. George isn’t saying he can’t survive a 2% interest rate rise, he’s saying he can’t survive ANOTHER 2% interest rate rise.

Reply to the comment left by Rich at 29/10/2022 – 10:47
That’s also how I read it. I think he’s saying that an increase in base rate from 0.1% to what would be 4.25% would be the beginning of the end in George’s case.

I can definitely sympathise with that if he purchased properties at say 75% LTV over the last two to five years on fixed rate mortgages.

Rents and values have certainly risen in that period, but probably not enough in the case of rents to keep these investments viable.

As somebody else has said, selling up now and enjoying what time he has left with his money might be the answer. Without the full details though it’s not easy to consider all available opportunities properly.

The article implies George has multiple properties. The simple solution is to sell off sufficient to clear the mortgage debt and just run a smaller, debt free portfolio.

CGT, well, you’ll probably just need to take the hit on that, but you only have that liability because you have gained in the first place.

The main cock up is not being debt free at 73!