With UK inflation on the rise, the Bank of England have expectedly increased interest rates and as such, lenders have followed suit with both residential and Buy to Let mortgage rates increased accordingly.
But, what does this mean for landlords and property investors?
Firstly, we have to be realistic. Interest and subsequently, mortgage rates, have been at all time lows for a considerable amount of time. In fact, we have never had it so good. The experienced investor will understand this, and therefore, apply a practical view to their portfolio and any additions they have planned.
Let's have a look at some of the questions we have been receiving from our clients:
Will my mortgage become more expensive?
For those undertaking new mortgages, be that a new purchase or a re-mortgage, the answer is yes. However, we need to focus on the fact that mortgage rates are still historically low. For example, let's say your balance is £125,000 and rates rise by 0.25%. You will only pay in the region of an additional £20 per month.
It is also worth remembering that many of you will have already secured a fixed rate on your mortgage. For you, nothing will change at all. Your payment remains the same.
What will happen to property prices?
With property prices we always have to remember that prices are determined and driven by several underlying factors, not just interest rates. As such, we need to consider all of the fundamentals that can push prices up and down. Rises in borrowing costs can certainly have an impact on property prices but from a UK perspective, it is vital we assess other contributing factors.
One significant factor is the ongoing shortage of homes in the UK which remains and will continue to remain for the foreseeable future.
We also know that the average first time buyer age has risen significantly in recent times and this rise has occurred whilst rates have been at an all time low. Any rise will not change this and could in fact increase it further. In turn, this will see individuals, couples and families renting for longer. This is all very good news for existing and new landlords.
Market analysts are still predicting 4-5% price rises in certain regions of the UK so selecting your location will become even more critical when purchasing property for investment.
Will rental amounts be affected?
Once again, our thoughts here are that this will be determined by location. As suggested above, we anticipate that those living within the rental sector will maintain their position (possibly for longer) which should see rental figures sustained or increased in desirable locations.
What locations are these?
Locations that can absorb the interest rate rises will likely be commercially active locations with a high number of blue chip/large employers where rental demand will continue to be high. Locations with a high student retention percentage can also continue to flourish.
Better off in the bank?
Savers have had it rough for a long time now so as interest rates rise, conservative investors will be able to take advantage of increases savings opportunities. This said, typical savings rates for lump sums in the UK are c.1.5% and until they start pushing 5-6%, even conservative investors are essentially losing money against inflation.
If we factor in predicted capital growth in the UK property market, savings accounts will remain the first port of call for only the truly conservative investor.
So, what should landlords and potential landlords be doing?
A shift in mindset is required by all as we experience a rise in interest rates. Property investment should always be viewed as mid to long term investment and as such we will encounter some bumps along the way. Interest rates remain incredibly low and rental demand has never been higher.
Ensuring your investment is strategically located will result in less opportunity for void periods for your property.
Furthermore, conducting research on in-demand locations will present enhanced scope for capital growth and widen your property appeal to potential tenants.
Seek out professional advice on locations and also allow them to source the best mortgage deals for you; both crucial for the long-term success of your investment.