According to Paul Fischer of the Monetary Policy Committee of the Bank of England (in a recent interview with the Daily Telegraph) a Normal interest rate for the United Kingdom is around 5%. With many buy to let investors on floating rates several points above base rate and specialist lending at close to 5% already investors with unusual/specialist requirements would face rates up to 10% unless lender margins were reduced. With funding shortages and the apparent lack of appeal Buy to Let investor mortgages have at present to the high street lenders falling margins seem unlikely.
Obviously the first time we raise base rates that will be a big signal to people. But you’d like to think independent financial advisers and others will be bringing this home to people when they are arranging their mortgages and other borrowings.Paul Fischer
At present it is still difficult to place non standard properties on a fixed rate that seems reasonable against the current interest rate backdrop. However with increases likely in the future and such strong signals coming from the Monetary Policy Committee that they feel professional advisers should be pushing their clients to consider a rising interest rate environment it seems a good time to review your portfolio as a whole. Consider if any low risk/standard properties could be moved to competitive fixed rates now securing a portion of your borrowing portfolio against rises. Perhaps review reallocating borrowing from properties where securing an appealing fixed rate would be difficult onto properties where this would be less of an issue. A professional buy to let adviser can help you review your portfolio and optimise it based on this advice.
A higher interest rate environment may also cause you to have to review your portfolio as a whole as naturally some of your more marginal holdings might not continue to generate sufficient rental yield to cover an increased mortgage. Disposing of some of these assets might prove prudent if you have these concerns. Also higher rates make debt reduction with surplus income more appealing due to the tax implications of holding savings.
Only time will tell over what period these rate rises will come but it’s certainly something we must be prepared for as the economy continues to limp back into recovery in the United Kingdom and the need to rebalance savings with borrowing returns.