Buy to let investors are being encouraged to remortgage following the decision from the Bank of England to raise interest rates.
The Bank of England has decided to raise interest rates by 0.25 per cent, meaning that many landlords could see their finances squeezed further. The change marks the highest interest rate rise since March 2009, with concerns posed that this could mean the Bank may begin increasing rates on a regular basis. Any landlords who are heavily geared could therefore be negatively affected by this and should look to remortgage.
Research from DJ Alexander Ltd has discovered that one in three landlords are already paying too much for their mortgage. An interest rate hike will further exacerbate this problem.
Head of financial services at DJ Alexander Ltd, Alan Kent, explained: ‘We have already seen landlords who have had the same mortgage for years and are experiencing falling yields and the likelihood of further interest rate rises will only compound this situation. If a landlord is on a lender’s standard variable rate, then it is highly likely that this will increase with each interest rate rise resulting in an erosion of the profitability of the property investment.’
He continued: ‘A decade ago the base rate was 5 per cent and lenders variable rates were typically 1-2 per cent higher, however through-out Q4 of 2008 and Q1 of 2009, there was a sharp reduction in the base rate but not a comparable reduction in rates charged to customers. It will be interesting to see whether lenders will be keener to pass on these interest rate increases in contrast to their reluctance to reduce rates ten years ago.
‘Consumers, and this includes landlords and property investors, must ensure that they shop around to get the best rate for themselves. This interest rate cut, and any subsequent ones may provide a source of competition between lenders who wish to attract new business. It is important that landlords monitor their borrowing costs closely and shift lenders and rates where possible to give themselves the greatest opportunity for an improved yield on their investment.’
Source: Residential Landlord