High yields and a rising demand fueled by rising rents has helped to increase wider participation in the UK private residential marketplace. However, with more and more inexperienced 'would-be' landlords jumping on the bandwagon - along with the loop-hole infested government-backed 'Help to Buy' scheme - the coming announcement by the Bank of England, with many analysts predicting once employment is above the BoE's own 7.7 million unemployment target, interest rate rises will become the new norm. The impact on landlords, especially after a decade of low interest rates, would be catastrophic for the wider sector.
Many organisations, including Landlord Assist, a landlord tenant management group, have warned landlords to start planning for the next stage in the property cycle. The years of growth, could, finally come to an end. Many argue that it is impossible to maintain sustained growth and this could impact the yields on rents and therein less demand and lower rents could impact on the very repayment of the buy-to-let mortgage itself - which could be catastrophic to the wider sector.
When the Bank of England, as is expected, increases the interest rate the impact could affect many unprepared landlords throughout the country? Landlords are being advised to calculate rising interest rates into their own business strategy. The changes in tracker rates for several banks - most notably West Bromwich Building Society - has seen many landlords mortgage repayments double in value. Many market analysts argue that if more banks and providers follow suit it could create a perfect storm which would place unrealistic repayment pressures on landlords.
The legacy of 1990-91 recession, saw landlords hit hard form rising interest rates, muted demand for properties and increases in expenditure from government schemes aimed at landlord home safety provisions. The net result was an increase in repossessions. The 2008 financial crises saw interest rates remain somewhat static, this shielded landlord's own mortgage repayments. However, if the 7.7 million unemployment target is achieved (i.e. the number unemployed falls to 7.7 million or below), Mark Carney, the new Governor of the Bank of England, is expected to lead the BoE Monetary Policy Committee in formally increasing the base rate of interest in the UK.
It is perhaps a good time for landlords to sit-down and calculate their own business plan in terms of their rental properties and to identify how and if any changes in the interest rates could impact on their finances?
