Property Rant 002

Happy New Year

I think interest rates potentially could go up. Do I think they will be going up in a hurry? No, I don't. I think, if anything, we're going to monitor it. Let's see what happens in the back end of the year. So, that's the quick answer, if you like. So, I mean, whatever happens, they're not going to go up massively. Okay? Because what's going to happen, as soon as they start going up, that will shock the market Okay? So, be ready for the shock. And actually be ready for the market to get a shock. Make sure you don't get a shock.

So, here are the key things that you can do to make sure you don't get a shock. Okay. The first thing is, number one, get a spreadsheet with all the finances on it. So, the rents you receive, the expenses going out, and know exactly where your cash flow is. Okay? That is critical regardless of what's happening. Okay? If you haven't done that, give the team a call, and we'll give you a cash flow that you can put all the data in, you know, and we can run you through it. So, you make sure you've got that ready to go. Okay? That's the first thing.

The second thing is how are your interest rates in there currently, but then look at whether they're fixed or variable, and then look at a tolerance. So, you might say, "Well, actually, you know what? That's fixed for the next two years. I don't need to worry about it for the next two years. But these ones are variable." If interest rates go up say 2%, okay, then you can work it out then.

Now, I use a thing called mortgage cost averaging. Mortgage costs average in the UK is generally say 6%. So, what are we talking about with 6%, if we assume all our mortgages were at 6%, that's quite high for the current market Okay. Now, most, if you look at mortgage companies, they're using 5.5%. All right. So, it's up to you what you use. But what I use with mortgage cost averaging is I say, right, everything is at 6% or everything is at 5.5%, or whatever you think it will be. Okay. And you can do it with individual properties if you want. I just do it across the board at 6%. And if I can't afford my portfolio at 6%, okay, then I need to look into it a bit more depth. Now, at 6%, if I've got coverage and I'm happy with that, then I can sit back, relax, and I can sleep through the rest of the year. Not really. But I don't need to worry about my cash flow with the interest rate I want going up. Okay.

This is key. If you're concerned about it, if you're worried about it, if you're on a fixed income and you find that you're stretched already. If you've got a massive disposable income, it's probably not that much of a concern. If you've got a huge portfolio, it might be a concern. If you've got a little small portfolio, maybe not that much of a concern. So, there's lots of variables. You can talk to the team and they will take you through a full portfolio review, and you can actually come back with the numbers and know exactly when you should be worried. And we can actually see, and we can tell you, "Right, that's about where your tolerance is. If they go up .75, or 1.5, or actually you've got 4% increase, whatever it is. Okay.

So, that is key. Get the cash flow, and then act as if, run some scenarios as we call them. Okay? The other third scenario that I like to include is one which is quite simply this. Assume you lose your job or you lose your income stream, assume you've got one income stream. Okay? So, your job is the number one. Lose your job for three months and then you get another one back at 70% of what the old one was. Can you survive? And If you can survive, fantastic. If you can't survive for that period without that income, then you need to build up the provision a bit more. Okay? So, guys, that's just a quick and easy ready reckoner for interest rates if they're going up in 2017.

Have a great day and live with passion.

Brett Alegre-Wood