How landlord accountants can help you survive the UK’s mortgage mayhem

Banner image- How landlord accountants can help you survive the UK's mortgage mayhem

Homeowners and landlords in the UK are facing increased mortgage rates for the first time in a long while, as the Bank of England upped its base rate to curb inflation. Interest rates are expected to keep rising, which will increase monthly mortgage payment brackets and could significantly affect the housing economy.

But why exactly are mortgage rates on the rise?

The Bank of England has raised interest rates by small percentages to their current rate of 3.5% and they are likely to go higher. Additionally, the government announced a budget with increased borrowing, causing concern among investors. This, combined with global market instability and aggressive rate hikes by the Federal Reserve, decreased the pound value and UK government debt, which led to an increase in mortgage rates!

How does the base rate affect mortgage rates?

The base rate, simply put, is the rate at which commercial banks borrow money from the Bank of England. Banks, in turn, lend money at higher rates to make a profit. The difference between the base rate and the lending rate depends on the profit margin to be made and the risk attached to the loan (ie, the more the risk, the higher the difference).
As is evident, if the base rate goes up, landlords will have to up their rental rates they charge to keep making a profit. While this may seem like a plus for landlords, it actually is not.
If the mortgage rates go up by even a few hundred pounds a month, landlords could have trouble meeting their obligations because soaring interest rates will lead to a drop in purchasing power, a commensurate drop in property prices and, in the worst case, a housing market crash.
At that point, it makes sense for them to rent out properties if they can pass on a sufficient fraction of the mortgage increase to their tenants as monthly rent – the alternative, if this does not work, will be to sell the property.

Is it worth having your own landlord accountants?

There are multiple financial matters that a landlord of any size needs to juggle, especially in times of turmoil like the present. For instance, how much cash should one feasibly keep on hand for a rainy day? Figuring out how much rent to charge is another complex question.

Rents must rise, no doubt, given the soaring inflation rates, but by how much? And how much of the cost increase can landlords afford to take on themselves?

Having a personal landlord accountant will help them answer these questions in a manner most fitting for their business and their business goals. If you are still contemplating hiring an accountant to help you look after your rental property business, here is why you should:

1. Focus on managing your property

Running a rental property business is hard work, with multiple aspects to staying financially stable and compliant. An accountant will help you stay on top of things like taxes and books of accounts and provide advice as needed to guard against fraud. 
They help with expense forecasting, which is vital for pre-planning. The landlord can rest assured that the money is taken care of and can thus focus on running the actual property business. 

2. Invest surplus money profitably

The monthly cash flow you earn from rental income can be an excellent way to build cash reserves – if appropriately invested. A landlord accountant can help optimise this investment by advising you on how to maintain the property and upgrade white goods and how to pay off more of the principal balance by applying the cash from the rental income.

3. Ensure rent is received on time

Accountants run monthly rent reports, which show who has yet to pay and who has paid in advance. That way, you will always have current figures at your fingertips.

4. Account correctly for expenses

You should have a different bank account for each property you rent out and handle the taxes and expense reporting separately for each – in case you have multiple properties, which a landlord accountant can take care of expertly.

5. Take advantage of tax benefits

Running a tax-effective rental property business requires the intervention of an accountant who knows all about the rules around property allowance, offsetting mortgage interest, claiming business expenses and so on. You never have to worry about paying more than you owe or scrambling to pay them on time.

6. Get monthly reports on time

Accountants prepare a complete set of documents like income and expense statements, accounts payable/receivable, bank statement reconciliations, general ledger transactions, balance sheets, and so on so that you have a complete picture of how you are doing.

In conclusion
Overall, while the spike in the base rate is worrisome, we advise landlords not to take any hasty decisions, as the system could correct itself within a few years. At the same time, this illustrates that having a sound accounting system resilient to fluctuations is vital.
Professional accountants are in the best position to guide landlords about how to prepare and plan their finances for long-term gain while always staying within the letter of the law. It is an investment every landlord ought to make, so if you are still trying to handle your accounts by yourself, it is time to make the shift.
Work with Golding Accountancy and put all your landlord woes to rest. We offer professional accounting services for landlords. They provide tax advice and support to ensure landlords do not overpay taxes and can take advantage of government tax-saving strategies.
Our landlord accountants are experts in various taxes related to the property sector, such as SDLT, CGT, VAT, non-resident landlord schemes, and more.
Golding Accountancy offers services to prepare HMRC-compliant accounts and tax returns, maximise tax reliefs and deductions, strategise the most tax-efficient way to purchase and manage rental property, and share advice on rental income and help offset mortgages. If you want to know more about our accounting services for landlords, please contact us today!
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