The first rise in interest rates in a decade could hit buy to let landlords and result on more rapid rent increases, it is suggested.
Rents in increased by 0.5% month on month and by 0.68% year on year in October to an average of £1,196 across the UK but Scotland and Wales have seen higher rises, according to the latest rental index from Landbay.
Rents increased by 0.18% month on month in Scotland and by 1.81% year on year to an average of £733 while in Wales there was a monthly rise of 0.18% and an annual rise of 1.49% to £642.
This compares with a month on month rise of 0.04% in England and an annual rise of 0.6% to an average of £1,227. But rents have fallen in London, down 0.05% month on month and by 0.8% year on year to £1,874.
The Bank of England’s Monetary Policy Committee meets tomorrow (Thursday 02 November) and is expected to announce an increase in base rate. This usually results in lenders putting up their rates which would have an impact on monthly borrowing costs for those on standard variable mortgage rates from December and for those on fixed rates when their deal comes to an end.
According to the Landbay index report it is another blow for buy to let landlords. The private rented sector has already seen a number of changes to financing including an extra 3% stamp duty on additional homes and the graduated removal of mortgage tax relief.
The Prudential Regulatory Authority (PRA) has also introduced tighter lending conditions for buy to let mortgages and all of these changes together have pushed up costs for landlords, the report suggests.
It points out that growth in rents since the base rate was cut to 0.25% in August 2016 has been relatively modest, rising by 0.94% across the UK, or 1.97% across the UK without London which has seen rents fall by 0.95% over the 15 month period.
‘Landlords have had to face a catalogue of challenges over the past couple of years, from stricter regulation, reductions to tax relief, and a significant stamp duty tax hike when buying a buy to let property,’ said John Goodall, chief executive officer of Landbay.
‘Yet despite these pressures, there has been little sign of them passing on these costs to tenants in the form of higher rents. Record low mortgage rates have enabled them to absorb some of the costs, especially those that are wary of tenants facing negative net wage growth, so a base rate rise could make all the difference,’ he explained.
‘A 0.25% uplift might seem small, but the message it would give to the markets, of monetary policy normalisation, could spook landlords, especially those embarking on long term tenancies,’ he said.
‘In and of itself, a quarter of a percent is not going to have a huge impact on rental prices overnight, but symbolically it has the power to galvanise landlords to price in many of the tax and regulatory changes that have been building up for some time now,’ he added.
