Last week, we saw the headlines about an alarming financial update: For the first time in a decade, the Bank of England increasing the benchmark interest rate by 0.25% to 0.50%.
But, like most of us humble renters who don’t work in finance or have any use for the iPhone stocks app, you’re probably not sure how this will affect you.
Basically, the base rate is the Bank of England’s official borrowing rate, which influences what borrowers pay and savers earn. The rise in rate is a tactic employed by the Monetary Policy Committee to lower inflation in the economy.
What does the change in interest rates mean for landlords?
Changes aren’t set to kick in until December but some high street lenders have already increased mortgage rates. Figures from the National Landlords Association show that for every £1000 owed on a mortgage, an extra £20 a month will be added. So, if you have a mortgage of £465,000 you’ll be paying an extra £1,100 extra a year.
Whether or not you’ll be hit this interest rate increase, depends on what type of mortgage you have. According to the BBC, it will be those with a variable rate mortgage who will be most affected, as their monthly payments will definatly increase.
However, if you’re on a fixed-term mortgage you won’t see any change until your deal ends, then the one you move to may cost more.
According to Money Saving Expert, this is what we know so far about what mortgage providers are doing:
What does the change in interest rates mean for renters?
It has already been suggested that people in the capital face the prospect of rising rents. In the end, it’s up to the landlord if they want to raise the rental price of their property. By raising the rent, it means they won’t have to sacrifice any profit they’re making on their investment. From Landlord’s point of view, they have two options:
- Raise the rent to make the same amount of profit but at the risk of losing tenants.
- Sacrifice some profit in order to keep good, reliable tenants happy in the property.
Having reliable tenants is crucial for any landlord to make a profit in the long term. So if you’ve been paying your bills on time and looking after the property, then there may be a good chance they won’t raise the rent in order to keep you happy in the property.
Though interest rate has risen to 0.5%, this is still historically pretty low. The uncertainty of the economy at the minute has resulted in us living in some abnormal financial times. Many experts have predicted that we shouldn’t expect these rates to remain this low but at the same time, there’s not likely to be another rise for a while. Martin Lewis of Money Super Market has said:
“The bigger picture though is this is likely to be the beginning of the end of uber-cheap mortgages. New fixes are already a tad costlier as the market’s anticipated rate rises; yet for now, deals are still incredibly cheap. And it’s important to understand that most lenders set aside a tranche – say, £30m-worth – that they’re willing to loan at the current rate.”
If you have a spare room in your property, renting it out is a great way of making an extra income and tackling the interest rate changes. And with over 22000 people searching for a room in the UK on Easyroommate, you’ll be in with a good chance of finding someone fast. Start your search here!