The Bank of England cut the base rate by 0.25% to 5% earlier this month, but this has only offered limited relief to landlords, with many still facing high borrowing costs.
A recent poll by bridging lender Finbri, which surveyed 600 UK property investors, found that 67% of landlords are concerned about the impact of rising finance costs.
This is mainly due to the combination of high interest rates and inflation, which is driving up essential property-related expenses.
What’s Driving the Worry?
Here’s a breakdown of what landlords are worried about:
- High Interest Rates: In 2019, the average buy-to-let (BTL) mortgage rate was 3.5%, with some lenders offering rates as low as 1.40% and 1.99%. However, since the pandemic and a series of interest rate hikes by the Bank of England, the average fixed BTL rate has climbed to 5.45%.
- Inflation: Inflation is eating away at landlords’ purchasing power and driving up the cost of essential property-related expenses. 77% of investors say this is a significant worry.
- Rising Property Maintenance Costs: General property maintenance and refurbishment costs have risen by 14% since 2021 due to increased material and labour costs.
The Impact of the Rate Cut
While the Bank of England’s rate cut is welcome news, it is unlikely to drastically reduce landlords’ financial worries.
Here’s why:
- Limited Impact on Fixed Rates: The rate cut will only help those with variable-rate mortgages or those who are able to remortgage now. Landlords with existing fixed-rate mortgages will not see any immediate benefits.
- Cautious Lending Environment: New BTL loan issuance fell by 16.7% in the first quarter of 2024 compared to the previous year, indicating a cautious lending environment.
Looking Ahead
Landlords are also keeping a close eye on property values and rental yields.
While the Nationwide House Price Index recorded a 0.3% rise in July, leading to an annual growth rate of 2.1%, investors are still concerned about the future of the property market.
The average rental yield in the UK is currently around 5.37%, which is higher than at the beginning of 2023, but still below the average BTL mortgage rate.
Finbri founder Stephen Clark says, “Property investors have seen financing costs skyrocket over the past five years and the challenges for the private rented sector remain significant. While the August 0.25% reduction is welcome news, it is unlikely to significantly ease property investor financial concerns.”
With a challenging economic landscape, landlords are likely to continue feeling the pressure for the foreseeable future.