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Real Estate Finance Insights

Real Estate Finance Insights

Bank of England

With interest rates soaring, a lack of clarity surrounding EPC regulations and repeated calls for a rent freeze, there has likely never been a more difficult time to be a landlord. Here, Mike Feasey, Relationship Director at Secure Trust Bank Real Estate Finance (STB REF), discusses the most pressing issues currently facing landlords and the consequent decisions that they are having to make.

Following months of uncertainty, this year will no doubt be looked back upon as a tumultuous one for landlords. While recent statements made by the Government and the Bank of England appear to have provided some much-needed clarity, many landlords still remain unsure of the future implications on their portfolios.

EPC regulations are no more

In September, Rishi Sunak announced that the Government would be scrapping the proposed EPC regulations. Which, on the face of it, would appear like welcome news for landlords. However, that may not be the case for all and one might argue that it does not end the uncertainty.

A sense of frustration could be felt by any individual who has already outlaid significant costs on ensuring adherence to now obsolete regulation changes, particularly during the ongoing cost-of-living crisis. However, all may not have been in vain.

We are currently in the run up to a general election and if Labour wins, there is every chance that the EPC rules could be reintroduced. Ed Miliband, the shadow secretary for climate change and Net Zero, suggested Britain has the 'worst insulated homes in Europe' and that he would reinstate requirements for landlords to upgrade the energy efficiency of their homes. If this were the case, it is likely that they would have to push the deadline back in order to give property owners enough time to make changes. Therefore, those that have already implemented the changes may find themselves once again in the driving seat.

Even in the event the changes aren't brought back in it is important that landlords know that they've made a decision that can still benefit themselves whilst producing a more pleasant living experience for their tenants. For themselves, the prospect of reaping the long-term benefit of a more marketable property (both for sale and to let) compared to those that remain uncompliant should offer plenty of reassurance. The promise of lower energy bills will likely make rental properties more attractive to potential tenants looking for homes that are less costly to heat, especially in light of the current cost-of-living burden.

For landlords with existing STB REF property loans, our EPC Improvement Loan, with rates Fixed  at the rate provided at the time of the initial loan, remains available to assist landlords in remediating their property portfolios with energy saving solutions.

Favourably holding the rates

News last month that the Bank of England is holding interest rates at 5.25% will be welcomed by some landlords as a sign that they may have weathered the worst of the financial storm. By leaving interest rates unchanged for the first time in nearly two years, the Bank of England has reignited the hope that inflation is finally cooling. With interest rates riding high above recent norms, having increased fourteen times consecutively from December 2021 when it stood at 0.1%, to the current 5.25% today, the news is likely to be welcomed by both landlords and their tenants, who have seen rents increase to support landlords' increased financial burden.

Even if rates remain at their current level, there are still concerns for those coming to the end of a fixed rate term. Having previously locked in at a rate significantly below current market rates, when their loan term does expire, they are likely to find that the cost of their monthly repayments has risen considerably. It is unlikely that rates will return to the historic lows any time soon. It is going to take some time for landlords to adjust their expectations of what a 'new-normal' may look like.

It's understandable that we are seeing an increased number of portfolio properties listed for sale during an ongoing period of sustained high interest rates. The upwards spiral has created an unsustainable economy for landlords and subsequently their tenants. It is hoped that the Bank of England's latest decision, however, should once again create some sense of optimism throughout the property market. STB REF can provide the assistance and support needed for landlords looking to discuss plans to obtain finance for property investment.

Considerations for a rent freeze

The rising interest rates have put pressure on rents, with landlords pushing up rents paid by tenants in a bid to cover some of their own rising costs. This has consequently led to repeated calls for a nationwide freeze on rates.

Having seen the impact of similar measures introduced in Scotland, it's important that any proposals are mutually beneficial to both landlords and tenants. Policymakers will be eager to avoid consequences like those being endured in Scotland, where landlords have been driven out of the market, and in turn reduced housing supply. The result of which is exacerbating the annual cost of rent across UK to record highs, with Scotland in particular facing the largest growth of 13.34% to £997.

The sweeping assumption has always been that tenants are poor, struggling with escalating bills. However, the same is regularly true for private landlords who are also battling with the uplift in interest rates, which in many cases, now likely exceeds the rent being received across the portfolio. A rent freeze would remove one of the few options available to landlords in the current interest rate environment.

Suppressing the income available to landlords will not only result in them struggling to meet their interest payments, but it will also see them unable to repair properties and undertake EPC upgrades, and could lead to a deterioration in the quality of rental stock.  

Whether a nationwide rent freeze comes to pass or not, we encourage landlords and real estate property developers who have concerns about this to speak to their lenders to get on the front foot about available options to them. At Secure Trust Bank Real Estate Finance, we are always available to discuss different avenues with real estate finance and offer unique property loans that cannot be obtained through high street lenders.

Navigating through uncertain times

Despite the challenges landlords are currently experiencing, it's essential they can continue to remain positive and navigate the wave of financial uncertainty. Secure Trust Bank Real Estate Finance remains committed to providing various financing solutions that can assist landlords in acquiring property finance to ensure stability during turbulent times.

For more details, visit Secure Trust Bank Real Estate Finance.