Mortgage interest rates headed for a rise?
With the base interest rate currently at 0.5% and given that it hasn’t been above that level for more than nine years, an increase has been on the horizon for a while.
Recent research by Deloitte shows that although UK consumers are feeling ‘more upbeat’ about their personal finances, we’re still prioritising essential spending over splashing out on luxuries. That’s evidenced by the challenges retail and casual dining sectors are still reporting.
Nevertheless, the economic forecasting group, EY ITEM, said in April that it’s likely the Bank of England will increase interest rates twice this year and twice again in 2019. And Schroders UK expects the Bank to raise rates once in 2018 and twice in 2019, to reach 1.25%. Markets suggest the next rise could even be as soon as May.
As such, landlords should prepare themselves for mortgage interest rates to follow suit, as they tend to.
Mark Carney, the Governor of the Bank, has admitted a rise this year is indeed “likely” but that any increases will be gradual - a small comfort to landlords, particularly those in the higher-rate tax bracket. Profits are already being hit by the withdrawal of mortgage interest as an ‘allowable expense’, replaced by a reduction in tax liability at the basic rate of Income Tax, so rising mortgage interest rates will mean even lower returns in the future.
A record 91% of landlords are currently on fixed-rate deals, showing a growing trend for longer-term payment stability and certainty. That’s been fuelled by all the tax and legislation changes in recent years pushing up costs for landlords, while stagnating wage growth has meant they’ve not necessarily been able to raise rents to cover the increase in outlay.
All in all, it looks as though landlords’ finances are going to continue to be squeezed for the foreseeable future, so it’s more important than ever to make sure you’ve got your figures straight and are keeping your tax liability to a minimum.
5 steps to take now:
1. Check the terms of your current buy-to-let mortgages – when do the products expire and what are the penalties for early redemption?
2. ‘Stress-test’ your figures to make sure you know the impact of a 1% interest rate rise, which we could well see by the end of 2019.
3. Consult a specialist buy-to-let mortgage adviser, who can advise you on the most suitable available mortgage products that can help protect your profits.
4. Review your outgoings and see whether there are any savings to be made – without compromising the quality of accommodation and standard of services and maintenance.
5. Check your local market by looking online and speaking to letting agents to find out whether you might be able to increase your tenant’s rent.
At Mortgage Advice Bureau, we offer a free mortgage portfolio review. Get in touch today to make a no-obligation appointment with one of our specialist buy-to-let advisers, who can discuss your options and make sure you’re on the right deal for your circumstances.
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