If you’re a landlord or property investor, you’re likely to feel that building and managing your property portfolio has become significantly more challenging of late.
Although once considered a reliable path to financial stability, a solid investment, and a dependable income stream, times have changed.
Factors like portfolio size, non-property income and asset variety all come into play. Exacerbating this complexity are the record-high interest rates of recent years – and their gradual, unpredictable falls.
It can be hard to know your next right step. To discover why, let’s look at the latest rate news and predictions…
Interest rates – what’s on the horizon?
On the heels of October’s Budget announcement, which notably stipulated a rise in National Insurance Contributions paid by employers, there is widespread speculation, such as:
What will be the knock-on effect on inflation?
How will companies adjust to the rising employment costs, by absorbing the cost themselves or passing it on to customers?
Will employers limit wage increases, for example during annual reviews? Will they alter how much is paid into salary sacrifice and/or pension schemes?
Since interest rates play a crucial role in controlling inflation, it now appears that rates will decrease more gradually than anticipated pre-Budget – or they may stabilise with little decline at all.
Despite having the nation on tenterhooks with every announcement from its monetary policy committee (MPC), the Bank of England’s decision-making continues to reflect a cautious approach.
Policymakers are expected to make a quarter-point cut this year, in February if not later. There is hope of more quarter percent cuts to the current base rate of 4.75%, but perhaps these will take longer to filter through given the budgets impact on inflation.
Even with potential rate cuts, there remains increased pressure on landlords who have higher mortgage interest costs, and who also face favourable tenant legislation changes which may come into force during 2025.
Implications for landlords
Amid this challenging landscape, it’s crucial that property portfolios are monitored on an ongoing basis. Generally, this is from a cash perspective, whilst also keeping a focus on rental yields, loan-to-value ratios, portfolio market value and net-of-debt market value.
Simple calculations can be done using online tools such as Rightmove/Zoopla for determining values, as well as easy-to-use mortgage calculators. For larger portfolios, creating management reports with detailed monthly or quarterly performance metrics provides valuable actionable insights.
Overall, the key is to remain proactive. This is accomplished by continually seeking out relevant data, then asking (and acting on) questions, such as:
• Are poor cash returns acceptable in exchange for capital growth?
• Do you prefer a settled portfolio or a more dynamic approach to buying and selling?
• If the latter, what capital gains tax and stamp duty may be anticipated, and what could be the potential outcome in the longer term?
• Could selling low-performing properties help to reduce the overall loan-to-value ratio, thereby improving cash flow?
It’s all about having clarity on what you want from your portfolio and then making decisions which help you achieve that strategy.
Our property-specific accounts & advisory service
In the face of fluctuating mortgage rate costs, our expert team, headed by David Herd and Paul Brides, function as a trusted source of guidance, delivering ongoing support.
Our aim is to remove the stress and confusion experienced by many landlords facing rate-related cash flow challenges, legislative and regulatory changes, and shifting energy-efficiency rules and tax reforms. Not to mention Section 24, which removed the ability for higher rate taxpayers to claim full tax relief on mortgage interest for properties in their name, eliminating a key method of reducing taxable profits.
Of course, all landlords are keen to build and maintain their portfolio while making all possible savings they can, legally and ethically.
That’s why the support provided by Champion spans across multiple disciplines, helping landlords to minimise tax liability, maintain compliance, prepare accounts and returns for filing and more.
Landlords also can take advantage of Champion’s “virtual FD” services, enabling them to outsource time-consuming tasks such as bookkeeping and payroll.
At Champion, we place great importance on collaboration, so we will work closely with you to help you advance towards your property ownership goals.
Our team bring lived experience and expertise, with many of our property accountants and advisors being property investors and landlords themselves.
We provide the knowledge and innovative solutions that make a meaningful difference to your journey in the property sector. So, no matter the next interest rate changes, you’ll have a helping hand to make the very best of them.
For more information, please visit https://www.championgroup.co.uk/services/property/ or call our property team on 0161 703 2500.
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