Rate hike could spell more gloom for landlords

Rate hike could spell more gloom for landlords

The Bank of England’s decision to raise interest rates for the first time in 10 years has raised fears of a further hit to buy-to-let landlords.

At noon today (2 November), the bank’s Monetary Policy Committee announced a quarter of a per cent rise in the base rate from its record low of 0.25 per cent – the first increase since 2007.

Many commentators believe the rise will not have a significant impact on the housing market, which has shown resilience in the wake of the Brexit vote and June’s snap General Election.

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But others have voiced concerns that the rate hike could lead to problems, particularly for vulnerable borrowers on standard variable rates and private landlords.

John Goodall, chief executive and founder of Landbay, said: “A 0.25 per cent uplift might seem small, but the message it would give to the markets, of monetary policy normalisation, could spook landlords, especially those embarking on long-term tenancies. 

“In and of itself, a quarter of a percent is not going to have a huge impact on rental prices overnight, but symbolically it has the power to galvanise landlords to price in many of the tax and regulatory changes that have been building up for some time now.”

Colin Ellis, chief credit officer at Moody’s Investors Service, told FTAdviser the housing market had not displayed the expected degree of negativity since Brexit and was likely to cope with a rate rise. 

He said: “Yes, things are softening, but we are probably not far off peak inflation right now, so the real wage squeeze might be most pronounced over the next six months or so.

“Twenty-five basis points, particularly given the swings over the much longer term, is not going to be the straw that breaks the camel's back. 

“House price inflation has slowed, not turned negative, even in commercial property. There was a short downturn after the Brexit vote, but it has recovered well over the last 12 months and valuations today are above our post-Brexit forecast.”

The FCA recently warned that one in seven mortgage holders could not cope with a rate rise of less than £100 per month.

But Mr Ellis said he did not think high levels of unsecured lending would have an impact on mortgage market and pointed out that someone on the average mortgage size of £200,000 would only see their repayments go up by £25 per month.

However, he warned there could be a rise in arrears in the buy-to-let sector, which has already been hit hard this year by a greater tax and regulatory burden.

“I do think we will see buy to let lenders and landlords having less wriggle room, but we are not expecting astronomical jumps in terms of arrears,” he said.

Halifax recently revealing confidence in the housing market had undergone a record fall to hit a five-year low, and Daniel Hegarty, chief executive at digital mortgage broker at Habito, expressed concerns about the impact of a rate rise on the 3m borrowers on standard variable rates.