Landlords concerned about the cost of keeping up with multiple mortgage payments will welcome predictions from economists that low rates of interest are here for at least another three years.
According to experts associated with Ernst & Young, the Bank of England is likely to keep the country’s base lending rate at or near the historic low of 0.5 percent until late 2013.
The move, they say, is primarily to ensure inflation does not slip below one percent. Currently, inflation is expected to surpass two percent, but this is widely put down to the rise in VAT, as well as increasing energy prices.
However, analysts fear this is not a stable situation and that rates may slip down to the one percent mark.
Ernst & Young believes the Bank of England will have to keep interest rates at 0.5 percent for the next two to three years, in order to avoid this scenario.
This may serve as a welcome relief for many residential landlords who were facing higher repayments on their buy to let loans if interest rates rose at the end of this year or in early 2011.
Peter Spencer, a chief economist at Ernst & Young has noted that the 0.5 percent base interest rate is quickly becoming the ‘new normal.’
However, he believes future rates will depend in part on whether the coalition government is able to implement its cost-cutting measures and how much this slows economic growth or a full recovery over the course of the next 24 months.
Much depends, he states, on the government’s plan to significantly decrease the country’s deficit over a five-year period.
If this proves to be a success, economists believe Britain’s growth will increasingly be driven by investment - including in the private rental sector - rather than by excessive spending from the public purse.
Meanwhile a new survey suggests four out of 10 landlords believe they would not be able to cover the mortgage payments on their properties if interest rates were to increase by 2 percent.
Flat share website, Spareroom.co.uk, found landlords are receiving rents barely covering the monthly mortgage repayments on their properties.
For 22 percent of respondents, a rate rise of just one percent would mean the sums don’t add up, and for 10 percent of landlords questioned the situation is far worse, with a rate rise of just 0.5 percent resulting in a rent-mortgage shortfall.
The research also revealed that six out of 10 landlords have been forced to hike monthly rents since the start of the year, with one in five planning to increase rents by five percent this year and 18 percent factoring in an increase of between three and 5 percent.
However, more than half of these landlords said they are worried they could lose loyal and valuable tenants as a result.
Spareroom.co.uk director, Matt Hutchinson, describes Britain’s landlords as in a ‘Catch 22’ situation.
He explained: “On the one hand, the rise in Capital Gains Tax for higher rate taxpayers means that many landlords either won’t be able to sell their buy to let properties or will sell at a far greater loss.
“At the same time, holding onto their properties means they are at the mercy of the Bank of England and facing higher mortgage payments.”
