Rising interest rates and buy to let

This month's increase in interest rates is widely expected to be followed by further rises. How high might they go and should buy to let investors be concerned?

On 3rd February the BoE's Monetary Policy Committee increased the base rate from 0.25% to 0.5%. Four of the nine members voted for a rate of 0.75%, signaling an almost certain further rise in the near future.

Money markets are pricing in at least two more increases in 2022, predicting a rate of 1.2% by year end and possibly 1.5% during 2023.

Higher interest rates are one of a number of factors which will likely slow the level of house price growth this year, however industry commentators factored this in when they published their 2022 predictions. Savills "​stand by our forecasts of average 3.5% house price growth across the UK this year, likely weighted towards the first half of the year.”

Mortgage lenders have started to increase rates for owner occupiers, though some have been shaving their buy to let mortgages as they fight for market share. Expect this to be short lived.

Some 50% of buy to let investors do not have a mortgage. Either they never had one or have paid it off. Of those who do, 80% are on fixed rates and will not be affected immediately.

Borrowers who are on standard variable rates or tracker mortgages will see an immediate rise in payments. As a guide, for each £100,000 of mortgage they can expect to pay £33 per month more than three months ago and another £20 for each additional 0.25% hike. For many, this will be more than covered by the near 10% increase in rents during 2021.

For those who are in a position to start a new fixed rate, perhaps it is a good time to speak with your mortgage broker.