What are the implications of a base rate rise for buy-to-let landlords?

What are the implications of a base rate rise for buy-to-let landlords?

The press would have you believe that a Bank of England base rate rise is an inevitability on November 2nd, when the Monetary Policy Committee reconvenes.

Certainly the revelation in mid-October, that inflation had hit the 3% mark, seemed to intensify rumours that a rates rise is imminent.

That train of thought has been fuelled, in part, by the Bank of England, which on the one hand is trying to keep inflation at around the 2% mark, but on the other has suggested that rising inflation is one of the strongest drivers for a base rate increase.

But what are the implications for those with buy-to-let mortgages?

There hasn’t been a rates rise in a decade, so a whole generation of home buyers and landlords have to this point been immune to the consequences.
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.

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

From an affordability angle, what impact will a rates 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 home buyer 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.

At Commercial Trust Limited, we work with a wide range of lenders, keeping abreast of rates changes but also the finer points of the rental market. We welcome any calls from anyone with an existing buy-to-let mortgage or thinking of becoming a landlord, who is not sure how a rates rise might impact on them.

Join our mailing list:


Comments

  1. richardrawlingsrichardrawlings01 November 2017 15:12:01

    What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage tax relief by HMRC, eventually to just 20%. This means that higher borrowers could even stand to make a net loss from their investment, hence increasing numbers of BTL investors leaving the sector.

    Reply to this comment

Leave a comment



Latest Comments

Scott Garnet
Scott Garnet 06 Nov 2017

If you have a patio or a porch it is important to make sure that any connecting doors are secured. Good advice for sliding glass doors is replacing the panels with storm resistant glass and getting heavier...

view article
richardrawlings
richardrawlings 01 Nov 2017

What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage...

view article
Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

view article
maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

view article
maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

view article
zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

view article
Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

view article
Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

view article
RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

view article
sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

view article
Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

view article
Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

view article

Related stories

More articles from Landlords