Bank of England’s Interest Rate Rise Could Spur Higher Rents

The Bank of England raised interest rates for the first time in over a decade, prompting concerns that rents across the country will rise.

The new rate was set at 0.5 per cent, up from a record low of 0.25 per cent. Landlords on tracker or variable rate mortgages are among those who will be hit with higher payments. This may have a knock-on effect on tenants, as additional mortgage costs levied on landlords will need to be offset, potentially through raising rents.

The interest rate rise is a particularly tough blow following the increasing pressure on landlords’ profits, imposed through tax changes and tougher regulation.

CEO and founder of Landbay, John Goodall, commented on the pressures landlords face with regard to the interest rate rise: ‘Landlords have had to face a catalogue of challenges over the past couple of years, from stricter regulation, reductions to tax relief, and a significant stamp duty tax hike when buying a buy to let property. Yet despite these pressures, there has been little sign of them passing on these costs to tenants in the form of higher rents. Record low mortgage rates have enabled them to absorb some of the costs, especially those that are wary of tenants facing negative net wage growth, so a base rate rise could make all the difference.’

However, policy director at the Residential Landlords Association, David Smith, described the rate rise as a ‘relatively small’ when considered in the midst of London’s changing market. He said: ‘Rents go up in the capital because of the housing pressure, so you won’t be able to trace a rent increase specifically. ‘

Donna McCreadie, a buy to let specialist at Perrys Chartered Accountants, was less optimistic about the effect the changes may have for tenants. She said: The increase of interest rates today announced by the Bank of England is another blow to buy-to-let landlords, who in recent times have already suffered an increase on tax rates and stamp duty. It is a possibility that if a landlord’s current mortgage rate is on a variable deal, this will eventually trickle down to the tenants and affect rent levels.’

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