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How will the new interest rate rise impact buy-to-let landlords?

2-minute read

Mollie Millman

6 August 2018

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Landlords have been urged to act quickly following an interest rate rise.

They have been told to proceed swiftly with any new property purchases, if they rely on a mortgage, as borrowing costs are expected to rise.

Interest rates rise to highest level in a decade

The warning comes after the Bank of England increased interest rates by 0.25 per cent to 0.75 per cent, the highest level in a decade.

Angus Stewart, chief executive of mortgage broker Property Master, said: “Landlords who are looking to borrow to buy a new property or refinance their existing portfolio may need to move very fast indeed if they are going to benefit from some of the good deals we have seen.”

Which landlords will be affected by the rate rise?

Banks and building societies are expected to pass on the interest rate rise to their savers and borrowers. It will be a welcome relief to savers who have seen lower rates on their savings during the past decade.

By contrast, borrowers may suffer as they see the historically low rates on products such as loans and mortgages increase.

In particular, the rise is likely to affect those landlords with a buy-to-let mortgage on a variable or standard variable rate.

Which landlords are unaffected?

However, recent research from letting agent Upad suggests that 50 per cent of landlords are on a fixed rate mortgage deal. This means that those landlords will not see any impact as their repayments will stay the same each month.

Immediately after the rate rise was announced, Mark Carney, the Bank of England suggested: “The housing market is subdued.”

He explained that the decision to increase rates was amid concerns about rising inflation. The interest rate could also dent confidence in the housing market, but this could also prove to be good news for landlords.

Which landlords will benefit?

As James Davis, founder and chief executive of Upad, said: “Given that the Bank Rate was kept at 0.5 per cent in May of this year, today’s announcement of an increase to 0.75 per cent really shouldn’t surprise anyone. If anything, I believe landlords actually stand to benefit.

“However, this isn’t just about mortgage interest rates - it encompasses so much more of the housing market. On the one hand, there’s an ongoing lack of affordable housing for purchase which maintains a level of buoyancy in the rental market.

“At the same time, this small rate increase could knock confidence in the housing market, meaning people chose to rent for longer. Either way, I believe landlords have nothing to fear.”

It remains to be seen whether Mr Davis’s confidence is justified, but for the most part, it seems like the interest rate rise won’t have too great an impact on too many landlords.

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