Although 2023 is likely to be a testing year for landlords, we need to approach it with the entrepreneurialism and tenacity that brought us into the business. Here I address what I think are the main challenges ahead and how we are grappling with them.
1. Adapting your mortgage strategy
One of my mortgages has just shot up to £1,575 from £890. A year ago, I was five year fixing at 1.65%. Now I am lucky to get a two year discount at 4.5% and I have five more product switches to contend with in 2023. Since inflation peaked at 11.1% last October, the key question is ‘has the bank base rate peaked at 4%?’ The consensus seems to be a peak of 4-4.5%. I am one of the optimists that is hoping there will be no further rise when the Bank of England Monetary Policy Committee meets on 23 March 2023.
Have we reached the tipping point between trackers and fixed rates which are starting to fall? I think the ideal scenario now is a tracker with no early repayment charges, so that you can switch to a fix when rates do fall. This is likely to be at the end of this year and during 2024 – that’s when I think fixes will be markedly cheaper. But these are finely balanced decisions. In the meantime, I am putting cash away to pay for a horrible hike in mortgage costs when my two year fixes at 1.25%, 1.65% and 1.99% are likely to be product switched to 4% if I’m lucky.
2. Watch out for under insurance
I have had three renewal quotes this month where the buildings sum insured had been increased by 19% to take account of rocketing construction costs. Under insurance is an increasing problem according to Hamilton Fraser’s Steve Barnes. At a recent event I chaired, he advised a revaluation every five years to be certain that insurers will honour the figure you provide. If you are under insured, the insurer may only pay out a proportion of your claim. For a valuation that insurers will accept, Barnes recommends a RICS approved rebuild desktop valuation which costs around £200.
3. Renters Reform Bill battlefield ahead
It is over eight months since the government published its new deal for private renters and we are still waiting for a draft of the bill, which was due to make its way through parliament in the first half of this year. Two key battlefields will be the student market and grounds for the landlord moving out or selling up. The Department For Levelling Up, Housing & Communities (DLUHC) select committee has mirrored the NRLA position by saying it thinks that the general student market should be exempt from the proposed periodic tenancies. The Westminster government must recognise that the student sector operates on 9-12 month fixed terms and will experience similar shortage problems to Scotland if they are forced into a system where students leave whenever they want. Parliamentary Under Secretary Felicity Buchan MP told the NRLA conference in November 2022 that she would look into concerns, but expect heels to be dug in.
