Photo by Innova Property
On 22 September, the Bank of England increased the base interest rate by 0.5% from 1.75% to 2.25%. As the seventh consecutive increase in a row, the base rate is now at the highest level since November 2008.
This is impacting what mortgage deals are available and has implications for HMO investors. So, let’s dive into what’s going on in the mortgage market! We’ll also provide some tips for navigating the ongoing uncertainty within the sector.
Increasing Mortgage Rates
Mortgage rates have more than doubled since the start of the year. Further increases have begun filtering throughout the mortgage market, and this will likely continue to happen. The recent volatility is causing concern and hesitation among buyers and sellers.
Experts are predicting further interest rate rises with some saying the base rate could reach 5.5% or even higher by next spring. This will naturally substantially impact the property market and brings a lot of uncertainty.
With the next base rate setting meeting on 3 November, many of us will be keeping a close eye on what happens next. The Bank of England has also issued a statement saying it’s prepared to raise interest rates as much as needed to curb inflation and boost the value of the pound.
Mortgage Deals Being Pulled
At the same time, lenders have been pulling mortgage offers. In a 24-hour period, around 300 mortgage deals were pulled. A growing number of lenders are also suspending products for new customers.
This happened following the latest interest rate increase and as the pound slumped to a new low following the mini-budget. However, the number of product deals is starting to pick up again now.
With this uncertainty within the market, there’s a growing number of property transactions falling through. And lenders are increasing affordability stress tests, which will likely lead to more buyers and investors being rejected for mortgage offers or being asked for larger deposits.
Advice for HMO Investors Amidst the Uncertainty
While you may have worries about the current state of the mortgage market and how this will impact your HMO business, there are ways to ensure you’re prepared for whatever is thrown your way!
1. Don’t panic.
Start by taking a deep breath and remaining calm. You do need to be prepared for a bumpy ride over the next year as there are a number of challenges that are expected to be ongoing. But be aware of this, understand what it means for you as a HMO investor, and focus on the things you can control!
2. Factor interest rate increases into your deal analysis.
Make your deal analysis as good as possible to help lenders feel confident and comfortable lending to you, but also factor in appropriate rate increases into your appraisals to ensure you’re prepared for any rises.
Changes in interest rates can influence your HMO deal significantly as rate increases can erode profitability and impact the cash flow at the back end of a deal! Because of this, make sure that you can handle any interest increases as rates are forecast to keep rising. And stay on top of what mortgage rates are expected to do in the short and mid-term.
3. Understand what this uncertainty means for the HMO industry.
While the current economic conditions are bringing a number of challenges, there is still a whole raft of reasons to have confidence in the HMO industry. It’s important that you understand what’s going on across the sector and within your local market.
As the cost-of-living crisis ensues, it will become more and more difficult for people, particularly young people, to buy their own property. This could actually lead to more people living in HMOs for longer as it’s a more affordable option within the privately rented sector. So, this could actually increase demand for your HMOs.
4. Do your research and review your portfolio.
As a HMO landlord, it’s important to keep up with everything happening to interest rates, mortgage deals, and lender requirements. Find ways to get yourself into a super lendable position and how to improve your mortgage application.
It may also be beneficial to strategically review your business to understand your portfolio’s performance and any changes you need to make.
5. Work with a HMO mortgage broker.
With the ongoing uncertainty, it can be especially helpful to seek professional advice and work with a HMO mortgage broker. This can ensure you choose the right deal for your circumstances and can also help you navigate the current maze within the mortgage market.
Mortgages are a crucial part of the second of five stages of The HMO Roadmap, which fully covers funding. For more advice on how to start, scale, and systemise your HMO business, become a member today!
And if you’d like to chat with our mortgage broker, get in touch with Ellie here.
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!