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  • Property-a-holics

    Interest rate rise - landlord perspective



    The Bank of England have just announced that the base rate is set to rise from 0.25% to 0.5%.



    This will be the first rise in a decade, representing the first increase since July 2007.

    Higher rates are expected to hit the 3.7 million households with a standard variable rate (SVR) or tracker mortgage. However, they will also benefit a large share of the 45 million savers who are likely to enjoy higher returns from accounts that pay variable interest rates.

    If you are on an SVR or tracker, this new base rate rise will represent an approx. £21.00 extra per month, per £100K of borrowing.

    £100,000 x 0.25% = £250.00, or £20.83 pcm

    £200,000 x 0.25% = £500.00 or £41.66 pcm

    £300,000 x 0.25% = £750.00, or £62.50 pcm.

    £400,000 x 0.25% = £1,000.00 or £83.33 pcm.

    A statement from Commercial Trust, a lender, gives the likely picture for the buy to let investment sector.

    It says: “If interest rates go up in order to counter inflation, anyone looking to apply for a new mortgage, is likely to find that they have to pay more interest than they would have if they had applied before the interest hike. For many other existing mortgage borrowers who are not protected by a fixed rate deal, monthly payments could go up.

    “For those on a tracker rate the rate will automatically increase and it is almost inevitable that the same will happen for those on a variable rate. For buy to let landlords with an existing mortgage, unless you are locked into an existing fixed rate, a mortgage rate increase from the lender may result in more expensive monthly mortgage repayments.”

    Mortgage Solutions commented that a rate rise may lead to rent rises:

    "A 0.25% 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".

    Paresh Raja (CEO of leading bridging specialist MFS) commented:
     
    “In light of rising inflation and stagnating economic growth, today’s decision to increase interest rates for the first time in a decade comes as no surprise.

    Nevertheless, it is important to note that the rise in interest rates will place an added financial pressure on first-time buyers and buy-to-let investors needing to borrow money.

    While the impact on the UK property market may not be immediately obvious, there is no question that this month’s upcoming Autumn Budget now takes on greater significance as it must find ways of alleviating stress and providing support for property buyers.

    With the interest rate now sitting at 0.5%, this is a prime opportunity for the Government to address issues like real estate demand and Stamp Duty to ensure the market remains buoyant and readily accessible for homebuyers and investors alike.”

    The team at Property Tribes Financial Services are standing by to assist landlords with their financing requirements.  Call them on 01206 654444 for service.

    SEE ALSO  -       Where next for house prices?

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    Base rate up by 0.25% to 0.5% today, a good time to review your m0rtgage.

    Despite "interest rate has doubled!" it's the same level we've been at for most of a decade!

    It was decreased earlier "because of brexit" and now it has had to rise "because of brexit" - the FPC has lost it if you ask me.

    Those on tracker/svr m0rtgages who will see a 0.25% increase will mean for every £100k borrowing is an extra £20 per month. Time to book in to see your mortgage broker? and look at those fixed rate m0rtgages.

    Ive had email from TMW, Nationwide, Santander and others already announceing from 1 December that mortgage rate will be going up.

    Though of course those of you on fixed rates will be ok until initial term comes to an end are left on a SVR.

    This is new for most as Only a fifth of people with mortgages have never experienced a rate increase

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    _________________________________________________________________________


    My posts are not financial advice but often me rambling - passing time on a coffee break.
    Our team at Bespoke Finance offers Limited Company Buy-to-Let and Cheap Life Insurance.

    _________________________________________________________________________


    Well, this isn't exactly surprising, after all the news coverage, and it only takes rates back to the 0.5% figure of a year ago, so I struggle to see how any landlord can worry.

    Of more concern will be how the BoE sees the likelihood of any additional increases, given falling real incomes for most people, an unknown outcome for Brexit spread over many years, and several million new owner-occupiers, and a few landlords too, who've known nothing but 0.5% base rates over the last 10 years.

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    Landlords should be reviewing their costs if they are affected by this.

    Our nationwide property management service is a flat fee of £40.00 per property per month inclusive of VAT.



    It is particularly popular with landlords in the South East (where rents are higher) and landlords who are looking to reduce costs ahead of Section 24.

    The era of Landlords trundling along at low interest rates not taking much care of business or being pro-active about protecting their property assets is well and truly over!

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    James Roberts, Chief Economist, Knight Frank responds to the news:

    ​“An increase in the base rate is often viewed with trepidation by the property industry, but this long expected move is unlikely to have a negative impact. I expect the Bank of England will follow the same strategy as the US Fed, and gently apply the brakes while giving lots of advance warning, in order to balance the competing pressures of normalising rates while not derailing growth.

    Consequently, I see a gradual rise ahead, partly to stockpile some future rate cuts should the MPC need to combat another downturn at a later date. Also, the Bank of England is showing some younger homeowners that rates do actually rise, given how long it has been since the country saw an increase - the last UK rate hike in 2007 came a few days after the first iPhones went on sale.

    For commercial property, it should be remembered that debt has played far less of a role in the market in recent years than was the case prior to the financial crisis. Commercial property yields are not strongly correlated to interest rates, so I do not see a small rate increase having much of an impact. Indeed, in some markets the re-emergence of rental growth, such as for offices in districts popular with technology firms, should keep investors active.”

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    See below comment from our co-founder Nick Marr on the potential impact for not just homeowners but renters too!

    "Today's interest rates rise announcement may not seem like a substantial increase, but it is highly likely that this will be followed by further increases over the coming years as the Bank of England puts an end to the almost decade of record low rates. Many homeowners, especially First Time Buyers who have purchased properties during this period, will need to re-asses their mortgage repayment budgets and make plans on how they would cut costs should rates rise even further over the coming months and years."

    "It is not just homeowners that will be affected by the new increased rates. The boom in the Buy To Let market over the past 5-10 years has meant that a large number of tenants in the private rental sector could also be affected by the rates rise. Buy To Let landlords plan their budgets and set rents according, in large part, to their mortgage repayments, and the new higher interest rates will be yet another blow for landlords' profits and tenants' affordability. Many UK landlords are already planning to raise rents following the Section 24 tax changes and proposed ban on letting fees to tenants, and this new announcement could push even more landlords to consider rent rises."

    "Our recent YouGov research showed that many tenants are already dangerously close to affordability limits, with 1 in 4 private renters spending more than half their monthly income on housing costs. Should we see a more significant rates rise in the next few years, we could see a substantial increase in the number of tenants struggling to keep up with rent payments."

    "While the new rates rise should not cause immediate alarm for mortgage holders, it should prompt anyone with a stake in the housing market to re-assess their investments and plan ahead to take account of the new direction of travel that the Bank of England has signalled with this announcement."

    Nick Marr, Co-founder of property marketplace TheHouseShop.com

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    I highly doubt this is be a one off. Historically there are several depending on the economic background and inflation. More so, they don't exactly have to be gradual. I believe the key is low leverage and fixed...

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    "Our recent YouGov research showed that many tenants are already dangerously close to affordability limits, with 1 in 4 private renters spending more than half their monthly income on housing costs. Should we see a more significant rates rise in the next few years, we could see a substantial increase in the number of tenants struggling to keep up with rent payments."


    This is what I don't understand when I hear landlords say they'll just increase rents when S24 fully kicks in, tenants who can't afford it will leave for somewhere cheaper or fall into arrears and be evicted. There's a perfect storm on the way if you ask me, especially if they increase interest rates over the next few years as well. Like others have said the BOE is being forced to increase rates so they have a cushion in case a crash does happen, if they leave it at 0.25% or even 0.5% there's no wiggle room to do anything.



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    I am a human bean.

    The pound has slid against the euro and the dollar after the Bank of England announced that it was raising interest rates for the first time in over a decade but provided little guidance on when the next increase might be.

    Immediately after the announcement, the pound was trading around 0.4% lower against the euro at around €1.1347 and around 0.2% lower against the dollar at $1.3221.

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    I think we will see more rises in the years a ahead

    My own feeling it will be a long time before we see a base rate of 5%


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Just watch the US Federal Reserve rate... ours has been tracking it for years.

    Also, some incentive to bank up some base rate for Brexit & the impending deflation - nowhere to go with cuts for stimulus if you're running at 0.25%

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