On Thursday 2nd August 2018 the Bank of England increased interest rates to the highest they’ve been since 2009. This change sees the UK interest rate increase from 0.25% to 0.75%. Though the increase has been small, it has had an impact on various sectors of the economy, including property.
Why have interest rates been increased?
Interest rates have remained static for a decade, as the economy has struggled to recover from the financial crash. However, things are starting to look up and rate increases show this. The Bank of England cited reasons such as low unemployment, positive results from recent economic data and an element of slack in the economy before Brexit. Mark Carney, Governor of the Bank of England remained positive about the UK economy, but also made clear that reversing the interest rate changes if they had a negative impact on the economy would also be an option. The vote to increase interest rates was unanimous across the board of the Bank of England. It also means that interest rates are no longer at the emergency levels they have been.
Impact on the Property Market
The influence of interest rate rises on the property market should be only be slight. Just 35% of households are on a variable mortgage and the impact of rate rises are usually felt most by homeowners.
There may be factors that do negatively impact the property market. Higher borrowing costs could mean a squeeze on investors with buy-to-let mortgages. Interest rates could lead to potential decreasing profits, with the increased cost of borrowing. If it’s perceived that interest rates will continue to rise, it’s important investors don’t pay over the odds for new properties. The increased cost of borrowing means that access to finance will be harder for some potential investors too.
Potential Positive Impact of Rate Rises
However, landlords are in a position where they can alter their own cashflow. By increasing rental rates, they can make adjustments if rate rises are unmanageable. Rent inflation often outpaces general inflation, which is good news for buy-to-let property investors. There could potentially be less competition in the market from other investors who have been priced out. It could also mean that it is harder for first time buyers to purchase a property, meaning that the rental market will remain strong.
The high demand for rental properties, which may rise even higher than its current record levels, puts buy-to-let investors in a good position. With a more competitive market, rents could rise, especially in up-and-coming areas. Cash buyers could also see an increase in their savings, which could allow them to invest in more valuable property.
It’s highly unlikely that interest rates will rise to an unaffordable level, and with Brexit uncertainty, the Bank of England remains cautious. It’s unlikely the next rate rise will be sooner than 2019, and most investors have a strategy for this in place.
It is possible to be successful as a property investor, despite interest rate rises. By being smart, investing in locations with an assured demand and understanding the market, property investors can still make considerable profits. RW Invest have a range of exceptional properties in profitable locations across the UK. There are guaranteed rental yields on selected properties and unique opportunities to invest in off plan developments. If borrowing isn’t an issue, then there’s no reason why your next property investment couldn’t be the best yet.