Base rate rise: implications for landlords

The press would have you believe that a Bank of England base rate rise is an inevitability tomorrow when the Monetary Policy Committee reconvenes. Andrew Turner, chief executive of Commercial Trust, considers the implications of a rate rise for landlords.

Base rate rise: implications for landlords

There hasn’t been a rate rise in a decade so a whole generation of home buyers and landlords have to this point been immune to the consequences. In fact in 2016, following the UK public vote to leave the European Union, the base rate reduced to 0.25% having remained at 0.50% since March 2009.

If interest rates go up in order to counter inflation, anyone looking to apply for a new mortgage is likely to find that they have to pay more interest than they would have if they had applied before the interest hike. For many other existing mortgage borrowers who are not protected by a fixed rate deal, monthly payments could go up.

For those on a tracker rate the rate will automatically increase and it is almost inevitable that the same will happen for those on a variable rate.

For buy-to-let landlords with an existing mortgage, unless you are locked into an existing fixed rate, a mortgage rate increase from the lender may result in more expensive monthly mortgage repayments.

At a time when inflation is already hitting the consumer in the pocket, a hike in interest rates could therefore potentially serve as a double whammy, with no guarantees that there won’t be further rates rises in the future too.

Of course there is the saying that you must take the rough with the smooth – and because the base rate has remained at its lowest historical rate for seven years, mortgage rates have helped to make home ownership a more affordable prospect, with lower repayment figures than prior generations had to meet.

Rates already changing

At the time of writing, we have no way of being 100% certain that a base rate rise will definitely happen on 2 November.

However in anticipation of a likely increase many mortgage lenders have begun to increase mortgage rates on residential products, as have some buy to let lenders, whilst others have in fact dropped their rates.

The window of opportunity created by competition, has seen unprecedented low rates for borrowing to buy property. This “golden” era may be coming to an end.

For many landlords, now is a time to re-evaluate and to consider their options.

Impact

From an affordability angle, what impact will a rate rise have on monthly repayments? Will you have to increase the rent that tenants pay in order to meet these increased costs?

Is now the time to consider remortgaging and taking advantage of the current low market rates with a longer-term fixed rate product, in case these products become more expensive?

More expensive mortgages could have a detrimental effect on homebuyer demand and affordability could be pushed further beyond the reach of many people. That in turn could affect house price growth – or capital growth, a valuable source of return for the buy-to-let investor.

For many private rental sector landlords with an existing mortgage commitment, now might be a good time to discuss your circumstances and options with a specialist buy-to-let broker.

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