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Those who remember the double-digit interest rates of the 80s and 90s may have dismissed last week\u2019s decision by The Bank of England to raise interest rates by a quarter of a per cent as irrelevant. Indeed, at 0.75% base rates are still very low, but the move will, no doubt, have an impact on the housing market and could cause some landlords to make substantial changes to the way they operate.<\/p>\n
There seems to be little doubt that lending institutions will pass the increase on. In simple terms, the move equates to an increase in the cost of borrowing equivalent to \u00a3250 per annum for each \u00a3100k of borrowing. Not an enormous sum in itself, but coming on top of changes to tax regimes, the agency fees ban and more regulatory licensing, it\u2019s another erosion of income for the landlord who finances a portfolio with borrowing.\u00a0 Some will have the comfort of a fixed rate deal and will be able to delay the inevitable, but those with a standard variable rate mortgage could be hit anytime.<\/p>\n
After ten years of mortgage rate stability, it\u2019s almost impossible to predict what will happen next. Some commentators believe the increase is to give the Bank \u2018wiggle room\u2019 in case the ramifications of Brexit produce a slowdown in 2019 and rates can be dropped down again. Others say its purpose is to slow inflationary pressures. In the middle of the debate sits the homebuyer unsure whether to buy now \u2013 while there are still great fixed-rate deals to be had \u2013 or play a game of wait and see. And that, of course, is the same boat that landlords are in, trying to second-guess the vagaries of the financial markets and economic growth predictions in very uncertain times.<\/p>\n
The problems for landlords are often magnified. With a portfolio, careful management is essential in these days of squeezed margins. Surveys suggest that landlords are already at the limit of the cost increases they can absorb and the next move is to pass on increases by upping rents. However justified such a move may be, it won\u2019t be welcomed by renters who have endured a long period of stagnant wages and rising prices.<\/p>\n
So, is there any good news implicit in the announcement? Other than for savers, it’s hard to see any real positives for the private rented sector. There is, however, a possibility that the move could slow the housing market by discouraging first-time buyers, at least in the short term.\u00a0 Longer tenancies and reduced property values could both be worthwhile for the landlord with a long-term commitment to the business and the appropriate investment strategy.<\/p>\n
As usual, my advice is to evaluate all your decisions carefully. For example, if you\u2019re about to secure a fixed rate mortgage deal \u2013 potentially a good move right now \u2013 make sure you understand the costs involved if you want to get out of that deal before the term expires. Shop around and weigh up where you can make savings that will mitigate the effects of your increased borrowing costs. Think about the impact of passing on the costs to your tenants. How will your rental values compare to other similar properties in your area?<\/p>\n
There\u2019s no simple answer to interest rate rises, but when you understand all your options, it\u2019s easier to make sound decisions, and I stand by my view that well-managed property portfolios remain a profitable business opportunity.<\/p>\n","protected":false},"excerpt":{"rendered":"
Those who remember the double-digit interest rates of the 80s and 90s may have dismissed last week\u2019s decision by The Bank of England to raise interest rates by a quarter of a per cent as irrelevant. Indeed, at 0.75% base rates are still very low, but the move will, no doubt, have an impact on […]<\/p>\n","protected":false},"author":2,"featured_media":11204,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"yoast_head":"\n