An obvious consequence of long-term low-interest rates has been a cheaper cost of borrowing. This has been beneficial to those with mortgages - either taking one out or those who already had them - and that includes landlords. 

How do interest rates affect buy-to-let?

The increase in rates announced on November 2nd means many of those mortgage costs will now go up. For landlords, the question is whether to pass that extra cost on to tenants. Part of that decision may be linked to whether they simply considered the lower rate after last summer a bonus, having factored in the benefits of a 0.5 percent rate that had been constant for more than seven years. 

For those who have taken out a buy-to-let mortgage since the 0.25 percent rate was set, the thinking may be very different. In this case, the rise may well have to be passed on, not least because the original rationale for the cut last year - that the economy would perform poorly after the vote and thus hold inflation down - turned out to be incorrect. Some would have taken out the buy-to-let mortgage in the expectation that 0.25 percent would be a longer-term 'normal' in the way that 0.5 percent had been.

Of course, higher rates also means mortgages for owner-occupiers will be more expensive, and that may just deter some first-time buyers, ensuring they either remain in the rental properties they are already living on or choose to rent. 

What will the future hold?

Looking forwards, landlords and potential homebuyers alike will want to plan for the future with some idea of how the situation might unfold. The lesson of recent history has been that two very different scenarios are possible - either rapid change as happened when rates plunged in the crisis of 2007-08 or a long period of status quo, as with the seven-year spell of 0.5 percent. 

However, neither of these extremes is likely to characterise the near future. In its statement, the MPC said: "All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent." for landlords, this does suggest there will still be future rises in the cost of buy-to-let mortgages, and they should plan accordingly. Equally, this is unlikely to happen at any rapid rate. 

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