2024 is predicted to be a challenging year for the housing market, with forecasts indicating significant increases in mortgage rates. This potential surge is the effect of The Bank of England’s decision to hike interest rates, sparking an increase in housing costs that has sent a ripple through the mortgage landscape.

In this blog, our experts at Purbeck explore how rising rates could affect buy-to-let property insurance and the strategies landlords can employ to reduce potential risks.

The effects of soaring housing costs

Increases in interest rates have triggered a surge in housing costs which has impacted a substantial portion of home loans.

As a result, half of all mortgages have already experienced repricing since December 2021, with an additional 5 million mortgages expected to be affected by 2026.

For typical homeowners transitioning from a fixed rate, the forecasted increase in monthly repayments stands at a staggering £240, marking a jump of approximately 39%.

This has led to many landlords being forced to raise rents or sell properties to manage under the escalating borrowing costs, resulting in the sharpest increase in private sector rents on record.

The implications for buy-to-let mortgages during inflation

While the forecast for 2024 might seem daunting, the anticipated rise in mortgage rates brings a mix of advantages and disadvantages for landlords with buy-to-let loans.

What are the benefits of inflation for landlords?

• -Higher inflation could lead to increased equity and higher sell prices for properties, benefiting landlords
• -Soaring house prices often led to a heightened demand for rental properties, potentially leading to increased rental income
• -Inflation also provides landlords with an opportunity to increase rent to reflect the market
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What are the disadvantages of inflation for landlords?

• -Elevated mortgage costs can reduce the profitability of rental properties
• -As rental costs rise due to increased mortgage expenses, this might affect affordability for tenants, resulting in a decrease in the tenancy of properties

How landlords can mitigate the risk of the effects of inflation

To navigate these potential challenges, landlords can consider several strategies, including:

Reviewing rental properties

One of the key measures you can take to reduce the impact of inflation on your rental income is to evaluate rental pricing strategies carefully, raising costs to ensure profitability whilst also considering tenant’s affordability.

Reassess your property portfolio

It might also benefit you to assess the viability of properties within your portfolio to identify locations that are earning you the least profit and separating those to offset rising costs.

Explore the option of fixed-rate mortgages

In a time of so much economic uncertainty, one of the most effective ways to mitigate the impact of future interest rate hikes is to consider fixed-rate mortgage options. A fixed-rate mortgage not only allows you to adequately budget for your property portfolio, but it also reduces the stress and risk of future rate increases.

Insuring against buy-to-let personal guarantees

With interest rates predicted to fluctuate throughout 2024, landlords, especially those with buy-to-let mortgages secured with personal guarantees, are facing an increased risk.

In a tumultuous economy, you may experience financial struggles and the chances of defaulting on loan repayments are higher. The fallout from defaulting on a personal guarantee could mean the loss of your personal assets.

One effective method to safeguard your personal assets is to obtain personal guarantee insurance (PGI). With a percentage of the value of your assets covered, PGI acts as a safety net in the event of any financial challenges.

Securing your buy-to-let personal guarantees with Purbeck

At Purbeck, we understand the challenges that landlords may face in 2024.

That’s why our personal guarantee insurance policies are designed to cover up to 80% of the value of the assets used to secure your personal guarantee.

If you want to be able to manage your property portfolio without the stress and uncertainty that comes with the fluctuating interest rates forecast for 2024, get in touch with a risk management insurance company today.