Tenants will be the real victims of the recent interest rate rise

Following The Bank of England’s decision to increase interest rates from 0.5% to 0.75%, industry insiders have revealed that buy-to-let landlords and first-time buyers will be most affected.

This in turn means that private tenants will be the real losers as landlords pass the price increases onto tenants through increased rents.

Nick Marr, co-founder of rental marketplace TheHouseShop, has said: “Many landlords are already feeling the strain on their finances from the Section 24 tax changes and increased stamp duty on second home purchases, plus there is the highly likely possibility of an increase in letting agency fees once the tenant fees ban kicks in.

“Adding to all these existing pressures, with a further 0.25% interest rate rise, could make it even harder for buy-to-let landlords to maintain their bottom line.

“Unfortunately, this could mean that tenants end up taking on the cost of the rates rise, as buy-to-let landlords, in many cases, price their rental properties according to their mortgage repayments.”

Statistics further indicate that one-in-three landlords intended to increase their rent within the next 12 months, with a likely increase of between 2% and 4% the realistic prospect for private tenants.

Research by propertypriceadvice.co.uk highlighted that homeowners had more confidence in being able to absorb any potential increased costs in comparison to landlords.

The report claimed that 57.5% of homeowners believed they could afford a slight increase to their mortgage repayments.

In stark contrast, 12% of buy-to-let landlords admitted that they were already struggling because of recent tax changes and the mounting pressure of increased mortgage repayments. They feared that any additional financial increases would force them to sell their homes and leave the buy-to-let sector.

Potentially, both buy-to-let owners and residential property owners could view the recent rate rise with anxiety. The current rate is the highest we have seen for a decade and the impressions for the future from The Bank of England is that interest rates are only going to increase over the next few years.

Russell Quirk, Chief Executive Officer of Emoov has commented: “It should act as a warning shot for home buyers and home owners. Yes, the cost of borrowing remains low, but interest rates are now at their highest in a decade and could continue to snowball, putting many in a perilous position when they come to buy or re-mortgage.

“Those looking to buy should be strongly advised against the temptation of borrowing beyond their means, as well as the importance of securing a fixed rate mortgage.’

The advice for those with mortgages and future first-time buyers is to plan for interest rate changes, ensuring that they are able to afford a rise in mortgage repayments.

Sam Mitchell, Chief Executive,of online estate agents Housesimple believes: “A generation of home owners have never experienced a rate rise, and now they have had two in the space of a year.

“Plenty of home owners would probably admit they haven’t planned ahead for rate rises, unwisely assuming that rates wouldn’t rise for years.

“If you are thinking about taking out a mortgage, it’s always important to factor in possible rate rises to see if you could still pay the mortgage if rates went up by say 1%.

“Also, for anyone on a fixed rate mortgage, although they won’t feel the pain immediately, it’s worth checking what your monthly payments might go up to at the end of the mortgage term.

“In particular, anyone on a two-year fixed rate deal that was taken out just before the rate rise last November, the term will expire in just over 12 months and it’s inevitable they will be re-mortgaging onto a higher rate than they are on now.”

The murky future of home ownership is clouded in economic uncertainty. However, all homeowners and potential homeowners need to anticipate that interest rates are on an inevitable long-term rise.

Whilst this could mean good things for savers, homeowners and private tenants should prepare themselves for perpetually increasing costs.

Have you seen buy-to-let property owners struggling in recent months? Does this pose a threat to the buy-to-let property market? Are private tenants the real victims with interest rate rises?

Today's Conveyancer