Interest Rate Rises Could Stall UK Rental Property Market

Interest Rate Rises Could Stall UK Rental Property Market

Interest Rate Rises Could Decimate
UK Rental Property Market

The recent changes in the dynamics of the UK property market are forcing a number of mortgage lenders and property investment specialists to advise clients how they can better protect themselves.

The Governor of the Bank of England, Mark Carney, has claimed that the BoE has no immediate plans to increase the base interest rate, currently remaining at the 0.5% record low, however this situation could change within the next twelve months.

The UK property market remains in a fairly delicate state and affordable residential properties are being bought with amazing speed, as the UK economy continues to improve but property prices are predicted to rise considerably over the next few months.Property investors are trying to beat the rush and save money and feel confident that property is still a good investment.

However, the flurry of property investor activity is already leading to a number of estate agents claiming that there could be another housing bubble, as the amount of people looking to invest in property is higher than the amount of residential properties available to buy.

This situation will lead to UK property prices exceeding the amount that many owner occupiers can afford to pay, forcing the UK property market to stagnate once again.

Many property owners across the UK are already worried that mortgage interest rates will rise, possibly as soon as next year, as even though the economy is improving, the cost of living is still extremely high, making property owners worry.

The government are claiming that living standards are improving across the country, however many home owners are still financially struggling to make ends meet.

If interest rates do rise, a large percentage of home owners will find themselves struggling to afford the increased monthly mortgage repayments, increasing the risk of increased property repossessions.

This could also have a detrimental effect on the property market, as less people will be able to afford mortgage repayments, forcing would be buyers to wait longer in order to save a larger deposit to purchase a new home.

The next UK general election expected to be held on 7th May 2015 will also affect the property market, which means that all political parties will start campaigning and promoting their policies when it comes to both the property market and social housing.

Depending on what each party promises, the behaviour of banks and mortgage providers and those thinking of selling or buying properties could change, as they will all take action to protect their investments.

It is also likely that a number of people will postpone selling or buying property until they know which political party will be in power and many economists are predicting a slow-down in market activity as the general election draws closer.

Regardless of what happens to the UK property market over the next few months, the UK private rental sector (PRS) is sure to be affected.

Over the last few years many UK PRS landlords have benefitted from unprecedented demand, however this demand is beginning to wane thanks to the introduction of the Help-To-Buy scheme allowing a number of first-time and next step buyers into the market and the overriding worry for landlords is that the amount of people that live in private rented sector properties could soon decrease even further.

At the moment, a number of mortgage lenders are offering Buy-To-Let mortgages with record low interest rates, in part due to the Government Help-To-Buy initiative. However, it is likely that BoE interest rates will increase eventually and the demand for private rental sector property will decrease, so there is the realistic possibility that mortgage lenders may soon introduce even stricter criteria for property investors and portfolio landlords when it comes to Buy-To-Let mortgages.

Some financial experts are even suggesting that property investors and portfolio landlords looking for a Buy-To-Let mortgage should think about investing in a five year fixed term rate in order to beat the worst of the rate rises.

It is difficult to accurately predict exactly what will happen to the property sales and private rented sector in the UK over the course of the year but it is clear that some things are going to change.

Property investors and landlords need to be even more diligent when choosing to invest in property over the next few months, and they need to prepare for a drop in income should interest rates rise, which could cause demand for property in the private rented sector to diminish dramatically.

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