For property investors and homeowners alike, the latest Bank of England base rate hike is likely to push mortgage interest rates higher.
In a bid to continue to tackle the country’s rising inflation rate, the Bank of England’s Monetary Policy Committee (MPC) yesterday (21 September) voted in favour of raising the base rate from 1.75% to 2.25%. This is the highest rate it’s been since 2008.
While the knock-on effect for consumers could mean savings rates increase, this latest rise is also likely to be passed onto borrowers. Mortgage rates remained at record lows in recent years, so property investors and homeowners seeking new mortgages or remortgages will likely notice a difference now.
Therefore, those with mortgages on fixed rates that are coming to an end soon are being urged to begin researching rates to find the best deals, whether that be through a broker or independently. Property investors with multiple properties in particular are being advised to assess the mortgages of their portfolios.
Time to overpay?
Many buy-to-let landlords and property investors opt for interest-only buy-to-let mortgages, only paying the interest owed on the capital. The total can then be paid off either on the sale of the property or using another investment vehicle.
Most lenders allow borrowers to overpay by up to 10% of their mortgage balance. During times of low interest rates, or when it seems likely rates will rise in the near future, it can be a good idea to make overpayments to bring the mortgage balance down, and David Hollingworth, mortgage expert at broker L&C Mortgages, believes now could be a good time to do that.
He adds: “Homeowners should brace themselves for challenging times ahead. If you are currently on a fixed-rate deal that ends within the next few months, it might be wise to seek out a new offer now that you can switch to once your old deal ends.
“Providers often allow you to tie into current offers for up to six months in advance.”
Further to this, Rachel Springall of Moneyfacts comments: “Remortgage customers may find they have more equity in their home due to rising house prices since the start of this year, but first-time buyers may now be facing a difficult time to afford the deposit required to secure a deal.
“That said, lenders are still offering an abundance of deals both for borrowers with a 5% or 10% deposit, some of which have no upfront fees and include cost-saving incentive packages.
“It’s imperative these borrowers compare the overall true cost of a deal and attempt to save on the upfront cost if they have used up most of their savings on a deposit.”
Property investors should evaluate strategies
The current climate is certainly something for all property investors to be aware of, although the upcoming stamp duty cut is likely to be enough of an incentive to spur on property purchases in the market, according to Jatin Ondhia CEO of Shojin.
It is also a good time for investors to reassess their assets, and the country’s property market has historically been seen as a safe haven through tumultuous times.
Ondhia adds: “When it comes to navigating the testing climate, agility and diversification will be particularly important. This is no time for knee-jerk decisions, yet at the same time, a laissez faire approach could leave investors over-exposed to the current macroeconomic headwinds.
“Investors must have the foresight to evaluate their strategies against the complex dynamics at play and consider which assets are likely to offer the best shelter.
“Against the current backdrop, it should be expected that many investors will look to balance traditional and alternative investments. Real estate could prove particularly popular if indeed the Chancellor does announce a stamp duty cut in tomorrow’s mini-Budget.
“Bricks and mortar always attract significant demand from domestic and international property investors, but I would predict this demand will rise notably if tax incentives are introduced.”
