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Interest rate rise could spark rent increases

Thursday 09 November 2017

The first interest rate rise in a decade could trigger a more rapid increase in rents as landlords are ‘galvanised’ to factor in recently-added costs, according to the Landbay Rental Index.

John Goodall, CEO and founder of Landbay said: “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. 

“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.

“A 0.25 per cent uplift might seem small, but the message it would give to the markets, of monetary policy normalisation, could spook landlords, especially those embarking on long term tenancies. 

“In and of itself, 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.”

Landlords have faced a number of tax and regulatory changes over the past two years, including a rise in stamp duty for second properties, the removal of mortgage tax relief, and tighter lending criteria from the Prudential Regulatory Authority (PRA) – which have all pushed up costs for landlords. 

In the 15 months since the Monetary Policy Committee (MPC) voted to cut the base interest rate from 0.5 per cent to 0.25 per cent in August 2016, residential property rents have grown by less than 1 per cent (0.94 per cent), compared to house price growth of 5 per cent.

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