We’ve enjoyed a steady decrease in buy to let mortgage rates since the start of the year, but how much further can they go and will they start to rise? Drawing on over 20 years of experience, Jeni Browne shares her thoughts on what is to come.
At the start of June 2021, we reported that buy to let mortgage rates had reached their lowest levels since the beginning of the year. In the month that’s followed, we’ve seen yet more reductions. I appreciate the property purchase market is still running rather hot (property prices have increased 9.5% year to date), which has deterred some landlords from investing. Still, these low rates are fantastic for anyone needing to remortgage or capital raise (more on this later).
As a landlord myself, I know low mortgage interest rates are most buy to let property investors dream, but alas, eventually, you have to wake up. I’m under no illusion that this will last forever; activity across the pond and inflation are clear signs that this good thing shall too come to an end.
“But how does what’s happening in the US and inflation impact buy to let mortgage rates?” – I hear you ask.
Without getting too much into the nitty-gritty economics, I shall explain. As the economy recovers from the pandemic, we’re starting to spend more money again, which has driven up the price of things like clothing and petrol. Consequently, inflation (the rise in the price of everyday goods such as housing, food, clothing etc.) in the UK jumped significantly and currently sits at 2.1%. It’s a similar story in the US.
Because inflation has increased so much, and wages are looking to grow to keep up, the balance needs to be redressed slightly. In response to this, the central banking system of America (The Federal Reserve) indicated that it would raise interest rates sooner than previously anticipated. Even though nothing has changed yet, things have started to shift in the money markets (where lenders borrow their money to lend to you), which, in turn, will impact mortgage pricing. Tellingly, our research suggests that mortgage interest rates in the US have already started to increase.
It was big news when the Bank of England reduced Base Rate (BBR) to 0.1% in March 2020. The latest predictions indicate that while BBR is unlikely to increase in 2021 significantly, it will eventually have to go up. The acceleration of inflation is likely to bring forward a BBR increase, even if it’s minimal, and this will impact how lenders price mortgage interest rates.
Realistically, I doubt anything will change before October when the furlough scheme ends, and the actual level of unemployment is realised. Thankfully, it seems that levels of unemployment due to the pandemic are not going to be as bad as perhaps we all first thought, meaning the economy will continue to recover. However, this does increase the likelihood that we will see some increase in BBR, and consequently mortgage interest rates, before the end of 2021, with more significant increases as we enter 2022.
So, what should you do?
If you are looking to purchase this year, it’s a balancing act. Realistically, we’re not going to see a decrease in property prices post 30th September; they’ll just stop rising at such a quick pace. By the time the dust settles, I imagine mortgage interest rates will have already crept up slightly. Therefore, perhaps waiting around isn’t going to gain you anything; conversely, it might cost you somewhat more.
If you’d rather not purchase right now but want to keep your options open, remortgaging to capital raise against an existing property would be a sensible way to prepare. That way, you can get a competitive rate on an existing property and have funds readily available to snap up the right investment when it comes along.
If you’ve got a remortgage coming up before 2022 anyway, I’d recommend you start looking at rates now. You can often secure a new mortgage up to six months before the incumbent term ending, so start shopping around (or get your broker to shop around for you) for the best deal. Ultimately, rates can’t get much lower, so whatever happens over the following months or years, you could be fixed into an unattainably low rate in six months.