Almost half of landlords indicate they will sell up if base rate continues to rise

44.66% of landlords have indicated that they will look to sell their investment properties if the UK base rate hits the expected 4.5%, according to new research ahead of next week's Base Rate announcement.

Related topics:  Landlords,  BTL,  investment,  Base rate
Property | Reporter
4th May 2023
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"The combination of rising interest rates, and successive hostile legislative and regulatory changes places significant burdens on private landlords"

As the Bank of England continues battling runaway inflation, a rate increase to 5% is currently viewed as more likely than not, with a one-in-four possibility that by Autumn it will reach 5.25%. Furthermore, with 52.75% of landlords set to raise rents and evictions increasing, the housing market appears precarious.

When the Monetary Policy Committee of the Bank of England meets next on 11th May, interest rates are anticipated to increase for the twelfth consecutive time to 4.5% - in an effort to reduce inflation to its more manageable goal rate of 2%.

Despite inflation dipping in March, it remains still persistently high at 10.1%. Food and nonalcoholic beverage prices rose to their highest level since 1977 in March. This is also the worst rate of any large advanced major economy. Further increases of this scale would negatively affect the economy's ability to grow, increase the likelihood of a recession, and harm home values as mortgage rates once again continue on their upward trajectory.

A recent survey by Finbri, of 1,001 renters discovered 31.07% of tenants are concerned about their property security - and with more landlords looking to sell if rates increase, the 15.18% of renters that are strongly concerned about losing their homes, may have their fears justified.

Renters are worried, but with rising rates and other obstacles, many landlords now feel they have no other option than to sell.

Stephen Clark, from property finance broker Finbri, explains: “The combination of rising interest rates, successive hostile legislative and regulatory changes places significant burdens on private landlords. Unsurprisingly, large numbers of private landlords are selling up and exiting the UK rental market. With reduced rental stock in the market and booming demand, those properties that are available have even higher rents which is a source of great concern for renters.”

Rates are set to hit 5% imminently, how are landlords set to react?

Whilst it was previously predicted that rates would peak at 4.5% in mid-2023, it's looking more than likely that the base interest rate will reach 5% in May. As a result, 44.66% of landlords have indicated that they will look to sell their properties and turn to alternative investments (45.35%) - with rising rates making it harder to profit from rental properties, many will be looking elsewhere for returns.

Not all landlords will look to sell their properties when the rates increase, but Finbri's survey has discovered that 52.75% of landlords will look to raise rents to cover additional expenses.

Tenants will have to bear the brunt of higher rents and face the prospect of evictions as landlords look to recoup their losses. For those tenants with non-secure contracts, it's likely that they'll be left with fewer options as the rental market contracts.

Impact of rising rates on the UK private rental sector

As interest rates continue to increase, the UK private rental sector is likely to face a number of challenges. With landlords likely to sell their properties, there will be a reduced stock of rental properties available for tenants. This will drive up rents and make it harder for tenants to find affordable accommodation.

According to Propertymark, there are ten times as many prospective renters signing up at each letting agency location as there are available properties. Finbri's survey also found 48.45% of renters have experienced increased rental prices and 35.86% experienced a lack of properties in their desired location. And that was before the upcoming rate increases!

All of these effects will be exacerbated if the base rate continues to rise to the predicted high of 5.25%. As landlords leave the market and with fewer properties available there will be further instability in the rental sector and further reduce the availability and affordability of rental properties.

How will renters be impacted?

Renters are feeling the pressure of rising costs, with Finbri's research showing that 27.07% have experienced anxiety due to renting and 73.93% of UK renters are strongly concerned (36.86%) or concerned (37.06%) about rent increases. These concerns are likely to become more significant if landlords start selling up to recover any potential losses caused by higher costs.

Those renters looking for new properties may find it harder to secure a rental property and could see that rents have risen to their highest level in decades. Additionally, landlords may now be more selective when deciding who will rent their properties, with the need to recover any losses increasing the pressure on tenants.

What's in store for the UK property market?

It's clear that the current situation in the housing market is on a knife edge, with increasing base rates making it harder for landlords to profit from their investments and tenants already experiencing financial difficulties during the cost of living crisis. For those looking to rent or buy property, the next few months could be turbulent as landlords attempt to manage their losses and tenants face higher costs.

A spokesperson from Finbri concluded: "Renters are experiencing anxiety and fears over energy prices, rent increases and the UK economic outlook. These are uncertain times for the UK rental market, and landlords and tenants must work together to navigate the current climate. Whilst landlords and tenants haven't always been considered equals, it's clear that in today's housing market, their relationship is more symbiotic than ever before, each party 100% requires the other to survive."

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