Much like the chancellor, the MPC chose caution over confidence; interest rates will stay at 0.1% until at least December 2021.
Understanding the Context
The Bank of England wants to maintain a 2% interest rate to create a stable economy post-pandemic.
However, given the bank itself has admitted that inflation could run as high as 4% or even 5% by Spring 2022, an interest rate increase must happen to encourage saving and discourage spending (so that inflation can stay under control).
The market speculated that the MPC would make this move on 4th November 2021, but their inaction increases the likelihood that the interest rate hike will happen the next time the MPC meets.
That takes us to December 16th, in just five weeks’ time.
But what does this mean for agents, landlords and tenants?
For Landlords with Mortgages
Mortgage repayments will stay the same for now, but landlords with variable or tracker mortgages will need to keep their eyes peeled in anticipation of the interest rate hike – and their monthly payments.
One solution is to change to a 5-year fixed-rate mortgage as soon as possible, which will lock in the current historic low interest rate before it goes up. Anyone looking to make a purchase or remortgage has around six weeks to find a fixed-rate deal before this happens!
Guarding against rising Interest Rates
Landlords looking to minimise risk with their mortgage may choose to overpay their outstanding debt. This can result in thousands of pounds saved on interest, and also opens up more opportunities for a better deal when the time comes to remortgage their rental properties.
A lot of landlords opt for buy-to-let (BTL) mortgages on interest only basis. However, BTL deals are typically more expensive than residential mortgages (around 1% extra), so landlords will need to stump up higher deposits and potentially increase rents to meet BTL lenders criteria which expects monthly rents to equate to 125-145 per cent of the mortgage payment.
We could even see some landlords struggling to compete with other similar rentals in their area where those property-owners are still on a low, fixed-term mortgage. But higher rents aren’t necessarily guaranteed. If they are unable to find tenants to pay the higher rents, they may not be able to remortgage and would therefore be trapped on their current lender’s standard variable interest rate. Many landlords may find themselves backed into a corner with a stark choice to either accept a decreased rental yield or exit the market.
How will tenants be affected?
Tenants will also be on the receiving end of an interest rate hike; as mortgage repayments go up, so too will rents. Tenants are facing a bleak time too if rents rise at the same time as their energy bills due to the ongoing energy crisis, meaning the risk of falling into arrears will be higher than ever.
Meanwhile, tenants who plan on becoming homeowners in the next six months may also be hit hard. Higher interest rates will impact their mortgage affordability, saving for a deposit takes longer with less disposable income if rents increase.
What letting agents should do next
Keep your eyes on the MPC meeting in December, it could be a game-changer for the whole of the UK.
Make sure your landlords are aware of their options when it comes to mortgaging and remortgaging a property – this may be the final opportunity to find a cheap deal for some time!