Given the changing economy, how can landlords win with mortgages?

With so much happening in the global and local economy, the UK government targeting inflation and movement in SWAP rates impacting buy to let and commercial mortgage rates, how can investors prepare? Commercial Trust’s Head of Marketing shares her experiences.

Being in the relatively unique and advantageous position of both being a landlord and working in the rental mortgage industry, I wanted to share my recent experiences approaching two mortgage renewals.

Clearly, as part of the team at Commercial Trust, I am privy to the state of the mortgage market for property investors. It is one of the busiest times of fluctuation I have experienced in over ten years here. Movements both up and down keep coming, as lenders adjust and re-adjust to the changing economic outlook.

Whether you are an experienced landlord or not, it can be bewildering to know what to do for the best. For landlords with many properties, there is a huge job involved to ensure no stone is unturned in keeping profitability optimised across a number of investments.

In turn, those landlords with one or two properties also have a huge amount riding on the success or failure of that investment, simply because with only one or two rents coming in, there are fewer levers to pull to mitigate against any risk, or leverage any advantages.

Take action 6 months in advance of a renewal

Have you ever had one of those (truly adult) conversations with friends about mortgages, only to find they remortgaged just before rates rose, whereas you got caught by higher rates? Or the other way around? This risk can be reduced.

Recently, two of my mortgages came to within six months of renewal at a similar time, so this was my trigger to take action.

If a new mortgage is not arranged to begin on the expiry of an existing deal, the lender’s default reversion rate is charged. These rates are usually more expensive than deals available in the marketplace, so getting a new mortgage is vital.

With six months to go, you might wonder why on earth I was worrying about it; but, as those of you who receive our chief executive’s weekly email newsletter will know, mortgage offers can be secured three to six months ahead of the mortgage initial rate expiry.

If mortgage rates are currently low and may rise, or the marketplace is particularly uncertain - as it is at present – you can get a mortgage offer arranged well in advance of your renewal date.

If you work with a lender who does not charge for valuing your property, you can secure this offer with no financial loss, whilst knowing you have a firm back-up plan, if rates rise.

As the time running up to your renewal date passes, if the lender reduces their interest rates, you can simply request that you are put on their lower rate product. Or, where other lenders offering similar products drop their rates, you can get your broker to apply to them instead.

If rates rise, your action in securing a rate six months prior could save you a considerable amount of money.

Where rates are tracking down, rather than fixing your rate, you can take a variable rate product. Just bear in mind that you want to be fairly confident there is nothing that could change that downward trend because, by their very nature, these products can go up as well as down.

For some this is too uncertain. As someone quite risk averse, I can empathise with that view, which is in part why I am using the method I am, to mitigate risk in other ways available to me.

Your Energy Performance Certificate (EPC) rating matters

Whilst Rishi Sunak stopped proposals to tighten up the rules on minimum Energy Performance Certificate ratings for rental properties, mortgage lenders are still offering discounted mortgage rates if your property is rated A-C.

Both the properties I was remortgaging were rated “D”. One property had recently had a lot of work done on it and I was confident it would exceed this, if I had it re-checked.

With the second one, I checked the details on the existing EPC, to see if there was anything I could do to get myself a “C”. I noticed that it had been assumed that there was no cavity wall insulation.

The property is ex-council owned and the council is still the freeholder. I contacted the council and secured, in writing, confirmation that there is cavity wall insulation. I had also recently replaced the boiler, which I could let the assessor know.

It cost me £60 per property for a new EPC. Both increased to within the A-C banding, which means I had more options, and cheaper mortgage interest rates available to me, on both properties.

Well worth the effort. In one property the boiler had had to be replaced in any case, and the insulation was simply a matter of securing evidence.

I appreciate that I was quite lucky with this, but take a look at your certificates. You may find you are on the cusp of, and can achieve, a higher rating. An EPC has a ten year expiry, so for the sake of £120 I got my monies worth.

What else can investors do to keep ahead of the game?

As I mentioned earlier, our chief executive sends weekly emails covering interest rates and news impacting UK landlords and property investors. This is how we, as a company, aim to share market product trends. You can sign up here.

I was incredibly lucky that during one of my mortgage applications, the lender I was applying with reduced their rates twice, so I really benefited by keeping up to date with rate changes.

The second mortgage is up for renewal in six months, I have had the EPC inspector round already and achieved the better rating I had hoped for (you can use the UK government website search facility to find a local EPC assessor) and I have a mortgage application going through, with a lender offering a free valuation.

Once that is in place, I will tuck it away for safe-keeping, and use our newsletter updates to keep an eye on SWAP rate changes, inflation, Base Rate updates and new mortgage products all in one place, in my inbox.