Landlords will pass on increased mortgage costs to renters as the Bank of England (BoE) prepares to raise the base rate again, says CMC Markets.
The firm expects the base rate to rise from 1.75%, as it currently stands, to 2.25% in September when the Monetary Policy Committee meets again in September.
If this done happen, CMC Markets says that repayments for variable rates – of which one in five households are currently on – will rise from a range from 1.75% and 2.25% to between 3% and 4% – and “this will inevitably spill into rent prices.”
It also says that house prices rises will continue to slow down (albeit temporarily) due to a crash in demand as people recalculate their budgets for this winter, in which the country is expected to enter a recession, through 2024, which CMC Markets describes as being “bleak”.
Chief market analyst Michael Hewson comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing.
“Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages.
“They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments on to tenants by increasing their rent or simply sell fast to lock in a better price.”
