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TODAY'S OTHER NEWS

Bad news for landlords as big interest rate rise announced

The Bank of England's Monetary Policy Committee has announced that base rate is rising from 1.25 to 1.75 per cent.

The rate is now at its highest level since December 2008 after the biggest single rise since 1995.

In addition the Bank has also raised its inflation forecast to 13 per cent and now predicts the UK will fall into recession in the last three months of this year.

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Tim Bannister from Rightmove says: “Today's increase in the base rate takes average monthly mortgage payments for new first time-buyers to over £1,000 if lenders pass on the rate rise to new applicants. This is approximately 40 per cent of the average first-time buyer salary, a level not seen since 2012.

"First-time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20 per cent higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to raise a large enough deposit. A new record first-time buyer asking price of £224,943 means that a 10 per cent deposit for a first-time buyer type home is now 57 per cent higher than it was ten years ago, while average salaries have only increased by 31%.

"For all home-owners, average mortgage rates for a two-year fix are just over three per cent compared to nearly six per cent ten years ago, so they are still historically low, and those currently on a fixed-rate will not be impacted yet. However, as rates creep upwards and with the wider economy uncertain, people may look for some financial certainty by locking in longer mortgage terms before they rise again."

Karen Noye, mortgage expert at business consultancy Quilter, says: "Up until this point, the increase in interest rates would have meant a relatively small rise in mortgage bills but this hike will certainly start to hit people’s budgets at a time when funds are already stretched due to the cost-of-living crisis.

"Those on fixed rate deals might still be feeling protected by their deal. However, unless you have recently opted for a long fixed rate deal then it is likely you’re going to need to face the music sooner rather than later when your current deal comes to an end. In the next year, there will be thousands of borrowers forced to walk out into a completely different interest rate environment and secure a new deal. This means there will be a slew of new borrowers suddenly having to partake in the misery that those struggling with tracker or standard rate mortgages are already bearing.

"For context, someone who took out a mortgage worth £250,000 over 25 years at around one per cent would pay roughly £942 per month. After today’s rise to 1.75 per cent, someone borrowing the same amount but at 1.75 per cent would pay £1,029 per month. What’s more is that if interest rates continue to climb to 2.5 per cent, monthly payments would soar to £1,121, a nearly £180 difference. This kind of pressure would certainly force someone to have to live their life differently to meet the new costs.

"Quilter analysis of the number of mortgage repossessions per year when compared to the Bank of England base rate shows that changes to interest rates can correlate with the number of repossessions that take place in a year. As interest rates climb we may well see repossessions climb with them as people struggle to make ends meet and sadly lose their house as they fall into arrears."

Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.

  • Vanessa Warwick

    To be accurate, it's only bad news for landlords who have mortgages on standard variable rates.
    I would imagine the vast majority of landlords have fixed rates, and many have no mortgages at all, so this will not concern them.

    I have a mid-sized BTL portfolio, and I only have 3 mortgages on SVRs. I'm currently re-mortgaging those to 5 year fixed rates.

    This rise will only hurt landlords who do not take action to get away from SVRs.

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    Agree with above, mine are all fixed cap and repayment due to be paid in 2 years , non issue…. apart from those who purchased their own home recently and paid well over the asking price 😬 now they may be regretting that decision.

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    Misleading headline as usual!

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    Tiny rise, peoples saving being massively trashed by irresponsible lenders.

  • George Dawes

    It’s gone up a few quid a month not exactly financial Armageddon 😂

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    George, it is for savers.

  • George Dawes

    Fair enough

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    Not a problem to those of us that are debt free, maybe we'll get a bit of interest on that cash sitting in the bank

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    or win more premium bonds!

     
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    As expected they rope everyone with help 2 buy Scheme’s, no stamp duty etc, then up the interest rate that’s a life sentence but they are first time buyers friend to make billions for big Developers.
    Scrapping Section 21 is enough
    to cause a Recession on its own

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    Well i disagree with comments above. It is a non story clearly if it does not effect you. However, thousands have been affected by the mortgage pressure test. This stopped people from being able to get these lucrative deals, including me.
    Conveniently they removed this pressure test a few days ago, and i will look into it again. The damage has been done though as rates are 1% above when i last looked at re-mortgaging.
    Therefore more to be paid under section 24, which really needs to be scrapped now. This is the problem with these low rates, it is the 40% tax that you pay on the mortgage payment that you do not receive. Rents will only go higher and more Landlords will sell when the fixed rate deal ends.
    Clearly for Landlord's whom have either no mortgage or very small mortgages this is a mute point.

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    I agree its all very well for those with no mortgages. Spare a thought for people with typical BTL deals on 2 year cycle, so every year half of them come up for remortgage. If you can be sure you will keep the properties longer then you can go for 5 year deals, but with the current state of things we might well need to sell up before then, and we don't need a massive early repayment penalty to add insult to injury.

     
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    Sorry Sad landlord, but those who borrowed too much only have themselves to blame

     
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    Any increase in the rate of interest will slow down business. 1929 recession? 100 years cycle? Important in economic terms. This increase will destabilize lot of business including the btl and the renting. Big crisis is approaching

    Zoe S

    Agree Mario

     
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    You're going back a bit, but spot on, both my Father and Grandfather lived through that recession and came through it, the fit will survive, others will fall by the roadside, it will sort the men from the boys

     
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    Digital clowns in suits now look what you have done, a right mess they are getting the Country into
    You can’t have an Economy based on housing alone. increasing interest rates will cause a Recession and that’s their answer morons, that’s 2 things wrong one caused by the other.
    There’s still something they can do even at this late Stage, Scrap Section 24, get their back pedals going immediately on Section 21, that’s a big improvement already, now one more simple step that was never required in the first place will reduce the impact enormously. Scrap THE WHITE PAPER and cop yourselves on, have a good evening.

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    I don't think we can compare the world to how it was 100 years ago, and in my humble opinion it is a mistake to do this. The causes of this inflation has very little to do with decisions made by the current Government, unless you include not putting more military assets around Ukraine after the Crimean incursions, though this would be a NATO issue more than just one Government. Yes Brexit has had an impact as has Covid. Putin and his cronies though are the biggest cause, again IMHO. I just hope that China can see how hard it is for Russia and do not fall into the same folly over Taiwan.
    It is not right that hard working people are going to be put into financial problems as they wished to own their castle. Government tinkering, through short term thinking is a major cause here.
    With regard to Landlord's, i don't think any of us are concerned at the current rate. The issue is Section 24. For us whom planned our 25 year loans and then have been hit by the 4 year roll in with section 24, to me, proves the point. As previously stated the pressure test then prevented me from re-mortgaging, as i'm sure it did others. My rents were too low, we even had the Government request that Landlord's show restraint in putting up rents, clearly they don't see the big picture of their decisions.
    With my plans for the future, I have no doubt that I will not be as comfortable as I had hoped for my retirement nor pass on as much as i would like to my children due to the current situation, as the only way I can respond is to sell and in time increase rents.
    I don't believe it is a major issue currently for Landlord's that have been in this game for a decade or more, but those newer to this business may be in for a rocky road and certainly less profit.
    I started out in this business in the very early 90's and I am now fortunate to have a lot of equity in my properties. I expect to reduce to a third of my portfolio that I had in 2018 in the next 2-3 years with most of the sell off in the next 18 months.
    I believe other Landlord's ,like myself, will come to the same conclusion or have thought out their own plan, as in becoming a Limited Company.
    Good luck to all.

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    I am interested in protecting my business, don't want to be vilified, my rents to be paid, the properties I rent to be respected and not to be bullied by any government of any colour to bully me or my business. Not a lot to ask. 1929 similar thoughts were around, society was changing in their wanting, great advances on technologies (goods for the masses), wars to impose technologies, etc. etc.
    2020, Covid19, working from home, meetings around the globe via technology, new technologies, Mars colonisation. Very shortly there will be some big winners and the majority big losers. Llds are really being bullied from all angles, preparing new ideas for the new housing. Be free of politics and you can see the economics!

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