Finance News

Landlords to Protect Themselves from Interest Rate Increases

Em Morley - February 7, 2014

Recent changes in the UK property market have driven mortgage lenders and property investment specialists to offer advice to investors on how they can protect themselves.

Mark Carney, Governor of the Bank of England (BoE) has states that the BoE’s base interest rate will not be increased in the near future; at present it is at the record low of 0.5%. This situation could however change in the next year.

The fragile nature of the UK property market, alongside affordable residential properties being purchased at high speeds, are causing a stronger economy, but also a rise in property prices over the next few months. Property investors are attempting to beat the swarm and save money in the sector.

Landlords to Protect Themselves from Interest Rate Increases

Landlords to Protect Themselves from Interest Rate Increases

This burst of property investors could lead to another housing bubble, warn estate agents. The amount of people seeking to invest in property is higher than the amount of properties available to buy.

This predicament will cause property prices to surpass the amount that most owner-occupiers can pay, which would force the UK property market to deteriorate again.

Homeowners around the UK are already concerned that their mortgage interest rates will increase, potentially as soon as next year. Despite the economy improving, the cost of living is still also very high.

The Government has said that living standards are improving, however, many property owners still struggle to cope with their finances.

If interest rates do increase, a large amount of homeowners will struggle further with their mortgage repayments. This would raise the risk of property repossessions.

This would have a damaging effect on the sector, as less people will be able to afford mortgage repayments, and potential buyers will have to wait longer to purchase a house.

The general election, on 7th May 2015, will also affect the property market. All political parties will begin promoting their policies on this sector.

The behaviour of banks and mortgage lenders will change due to political action. Those thinking of buying or selling properties will also attempt to protect their investment.

Some may delay buying or selling a property until the political party in power is announced.

The last few years has seen private rental sector landlords thriving, due to extraordinary demand. This demand is starting to decline, however, as the Help to Buy scheme is aiding first time and next step buyers into the market, and the amount of people living in private rental sector properties could decrease even further.

A number of mortgage providers are currently offering buy-to-let mortgages at record low interest rates. However, it is expected that BoE interest rates will rise eventually, and the demand for private rental sector homes will decline. Mortgage lenders may then introduce stricter criteria, for property investors.

Property investors could maybe look at investing in a five year fixed term rate to beat the worst rate rises.

Property investors must be more thorough when looking to invest in the next few months, and a drop in income should be expected, plus a reduction in the demand for property.