HOMEOWNERS have enjoyed decades of low mortgage rates allowing many to earn extra income as landlords.
But mum-of-one Kelly Davies is just one of millions of landlords around the UK who may be forced to pass on today’s interest rate rise to her tenants.
The 39-year-old, who works in finance, has never experienced an interest rate rise as a homeowner.
She owns a family home in Penarth, Wales, where she lives with her husband James, 40, as well as a buy-to-let property in Cardiff.
She had a variable rate mortgage on her family home and an interest-only home loan on the buy-to-let property – and she is facing higher bills for both.
She said: “We’ve had it good for a while as our residential mortgage has only decreased.
“We’ve had time to overpay our mortgage and in terms of monthly increases on our home… we won’t really notice it.
“But we’ve also got a buy-to-let property and may have to increase the rent for our tenants to recoup our extra costs”
“They are really good tenants and we don’t want to drive them out so we’ll do everything we can not to do it.
“I’m worried about the long-term effect it could have on renters.”
Earlier today, the Bank of England today increased its benchmark rate by 0.25 per cent to 0.50 per cent – the first rise for a decade.
The widely expected 0.25 per cent rise will hit homeowners with variable rate and tracker mortgages but property investment firm Landbay has warned landlords could pass any increases in their buy-to-let mortgage payments onto their tenants.
Overall the average cost of renting across the UK is £1,196 a month.
But those in London pay much more than the rest of the country – forking out £1,874 a month on average compared to those in Wales who pay just £642 a month.
Landbay said while many experts expected rents to rise before now due to changes in buy-to-let rules, the last rate-cut in August 2016 meant landlords could still afford to take advantage of cheap mortgage deals.
But today’s hike could “prove to be the starting gun on rapid rent increases,” it said.
John Goodall, founder of Landbay, explained that 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.
He said: “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 added: “A 0.25 per cent uplift might seem small, but the message it would give to the markets could spook landlords, especially those embarking on long term tenancies.
“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.”
Many banks and building societies are expected to pass on the rise to their customers.
Earlier this week, Nationwide became the first lender to confirm it will push up the cost of its variable rate deals if the rise does go ahead.
The UK’s largest building society also confirmed it would be passing the rise onto its customers with savings accounts.
Money experts are expecting the Bank of England to take action amid concerns over consumer debt and soaring inflation are putting the squeeze on household finances.
Figures from the Office for National Statistics found the inflation rate hit 3 per cent in August - its highest level since 2012 and above the Bank’s target of 2 per cent.
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