What does the Bank of England interest rate hike mean for landlords?

Today, the Bank of England announced that it has raised the base rate for the first time in more than a decade.

At the Monetary Policy Committee’s meeting on 1st November, the committee voted by a majority of 7-2 to hike the bank rate to 0.5 per cent, up from its historic low of 0.25 per cent. While the increase of only 0.25 per cent is a small one, the move is a significant milestone in the UK’s economic performance ahead of the country’s departure from the European Union – and a significant change for investors in the UK’s property market.

What does it mean for buy-to-let investors? Landbay warns that the interest rate hike could be the starting gun for a more rapid rise in rents.

The buy to let sector has faced a number of tax and regulatory changes over the past two years, which have put pressure on landlords to increase rents. A rise in stamp duty for second properties in April 2016, the removal of mortgage tax relief from April 2017, and tighter lending criteria from the Prudential Regulatory Authority in January and October 2017 have pushed up costs for landlords. Many expected these would be passed on to tenants but last year’s base rate cut to 0.25 per cent relieved some of this pressure through record low mortgage rates.

John Goodall, CEO and founder of Landbay sas: “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.

“A 0.25 per cent uplift might seem small, but the message it would give to the markets, of monetary policy normalisation, could spook landlords, especially those embarking on long term tenancies. In and of itself, a quarter of a percent is not going to have a huge impact on rental prices overnight, but symbolically it has the power to galvanise landlords to price in many of the tax and regulatory changes that have been building up for some time now.”