Recession Proofing Your Buy to Let Portfolio

With the UK officially in recession and mixed reports about mass employment on the horizon, it is a worrying time. However, as Head of Sales, Gavin Richardson, explains, there are steps that buy to let landlords can take to help recession-proof their portfolios and weather the storm.

Shops and leisure facilities have reopened, and some of us have even returned to our offices, but it’s clear to see that lockdown has taken a significant toll on the UK economy. As we enter a significant recession, the first for 11 years, concerns remain about what will happen to employment levels when the Government’s furlough scheme ends in October, as 2020 continues to be the year of uncertainty.

The main worry for landlords at times like these is the financial stability of their tenants; will you still be receiving rental income or facing void periods? Although June’s economic figures looked positive, no-one knows what this year still has in store for us. However, there are several things you can do to help mitigate future financial struggles.

Cash Reserves

While reports show that there is still an increasing demand for rental property, the unfortunate likelihood of further redundancies at the end of October onwards means that you should be prepared for rental voids and arrears none the less. Now would be a good time to look at your liquid assets and ensure that you have cash reserves available to cover the potential loss of rental income.

Remortgage. Now!

Currently, buy to let mortgage rates remain low, although, we are expecting them to start increasing imminently. If you haven’t already, now is an excellent time to take stock of your existing mortgage(s) and look into whether you could bring down your monthly mortgage payments. By doing this, you will increase your cash flow and boost your cash reserves. Even if you’ve got a couple of years left on your existing mortgage, it might be worth talking to your broker and investigating what cost-effective options are out there for you.

For those with several properties who are looking to streamline monthly outgoings and reduce time spent filling out remortgage paperwork, you could consider a portfolio mortgage. This allows you to place multiple properties under the same mortgage, with one monthly payment to a single lender. We’ll be looking into these in more depth next week; however, if it sounds like something you’d be interested in, do speak to your broker who will be able to advise whether it’s a suitable option for you!

Make Smart Investments

If you’re looking to make a new buy to let investment in the coming months, consider the type of property you want to purchase. Properties which can be let to multiple tenants, such as HMOs, spread the risk of rental voids as you receive income from various people. Traditionally, HMOs also attract higher yields than vanilla buy to lets, so they’re certainly worth considering if you’re looking to diversify and expand your portfolio.

Checking Tenant Financial Backgrounds

If you’re taking on new tenants in the coming months, you could complete more in-depth financial background checks (if you don’t already). Doing this will give you a better idea of whether they will be able to pay some, if not all, of the rent if suddenly unemployed. It’s a bit of extra work but could benefit you should any tenants fall into financial difficulty later in the year.

From experiences of previous recessions, being prepared and strengthening your investments how and where you can, ahead of time, is the most sensible approach. While it might mean a bit of paperwork, it’s better to do it now than later down the line.

If you’d like to discuss your property finance options with one of our team, do not hesitate to call on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk for expert advice.

19th August 2020