With the Bank of England continuing to drop heavy-handed hints as to the possibility of an imminent interest hike (not least BoE governor Mark Carney’s recent admission that the chances of an “adjustment” in the “near term” had “definitely increased”), financial markets are now pricing in a high probability that the bank’s Monetary Policy Committee will raise rates to 0.5 per cent when they meet next in November.
Given this near certainty therefore, the time has come for brokers to ponder the possible effects of such a rise upon their buy-to-let customers and the measures that can be taken to help them.
It’s safe to say that the sector has suffered a series of worrying setbacks in the past eighteen months or so. Many commentators believe that an increase in interest rates could compound the trend towards downsizing and further undermine less affluent multi-property investors, but is that really the case?
In the years since 2009, over 2.2 million first-time buyers have benefitted from the advantages of low mortgage costs and the rock bottom interest rates that have helped to counteract property inflation, but in the last few weeks lenders have responded to the likelihood of interest rises by increasing the rates on their fixed rate loans by between 0.2 per cent and 0.25 per cent.
As the cost of borrowing and mortgage repayments begin to grow, and affordability issues start to impact upon those struggling to save for a down payment, so too will lenders apply stricter lending criteria to first-time buyers.
With less and less people able to afford their own home therefore, the demand for rental properties increases, as do the chances for landlords to boost cash flow and income. Put simply, when interest rates rise, more people rent, and this can only be good news for our buy-to-let clients, especially given the strong possibility of new Autumn Budget incentives (which could include renewed tax breaks) for those who offer longer agreements to their tenants.
Higher mortgage rates affect everybody of course, although there is no reason why landlords wouldn’t be able to offset any losses with higher rents. Nevertheless, with the industry know-how and market expertise that brokers are so justifiably renowned for, the time has surely come for us to revisit our past clients, look at all the available deals and find the most suitable and economic packages to help turn buy to let around and back to profitable ways. In essence, we need to see that the role we play as brokers is now more important than ever.
Ying Tan is managing director of Buy to Let Club