Finance Management for Property Owners

Impact of Rising BOE Base Rate On Rental Yields for Property Owners

As a property owner you may be rightly worried about rising Bank Rate (from 0.1% to 2.25% now) and the predictions about Base Rate further rising to around 4.5-5% in 2023 in the UK.

What does this mean if you are on a Variable rate for your buy to let property or commercial property?

To give an example, if you have an outstanding mortgage or loan of £100,000 at 2% + Base Rate, you were earlier paying 2.1% per year i.e. £2,100 which has now gone up to 2% + 2.25% base rate (as of 01/10/2022) and you will now be paying £4,250 in interest for your loan.

If you are on a Fixed Rate for your mortgage or property loan while your fixed rate term lasts, but you will be looking at increased pay outs once this comes to an end.

In these circumstances, your net returns or yield from Rental Income will be hit and you may need to take appropriate steps to reduce your expenses while maintaining the same level of service for your Tenant(s).

How can you reduce the impact of this increase in interest payout?

One way to consider could be to see if you can increase your current rent, however that may be difficult for most property owners because of Cost-of-Living crisis many tenants may be facing due to increased energy prices and rising prices of essential commodities and daily needs.

Can you reduce costs related to your property?

If you own a property which is fairly close to your own home, and if you can spare some time, it may be a good idea to consider self-managing the property. However, if you are living in London and own a rental property in Edinburgh or Aberdeen it may be very difficult to self-manage the property.

Similarly, if you are relying heavily on local estate agent to market your property you should think if you can self-market your property to save some cost.