Bank of England interest rate hike: is it a good time to invest in rental property?

The Bank of England has been increasing its base interest rate more and more since the beginning of the year in order to curb the rise in inflation. Interest rates are raised to discourage spending and reward saving, however, higher rates can lead to higher mortgage repayments, which is no doubt of concern to homeowners and potential investors.

Interest rates are currently at 1.75% and with double-digit inflation at 10.1%, this rate is only expected to rise.

Buy-to-let mortgages are designed for investors intending to rent the property to tenants. Typically, these homeowners use interest-only mortgages to help generate more cash flow.

However, Claire Flynn, mortgage expert at said: “Spiking borrowing costs, insurance premiums and maintenance costs are all seen as putting potential and current owners out of the buy-to-let market.”

Some landlords have already taken action by passing on higher borrowing costs to their tenants, raising rental prices to combat falling profit margins.

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Yet this is likely to leave many tenants distressed and more financially strained due to overall cost of living pressures across the country.

But that may not be bad news for tenants looking to access the property ladder.

Ms Flynn said: “With homeowners turning their backs on rising mortgage interest rates, there could be an increasing number of properties on the market, potentially providing more options for first-time buyers.

“Housing market momentum could also show signs of slowing, with Halifax reporting a 0.1% month-on-month fall in UK house prices in July.”

Save a larger deposit

Ms Flynn explained: “The bigger the deposit you have, the more likely you are to get a lower interest rate.

“Most lenders expect a deposit of around 25% for a rental mortgage, but you can often access better rates with a 40% deposit.”

Consider all costs

Ms Flynn said: “Be sure to consider both the interest rate and the fees when comparing the cost of mortgage transactions, as you may find a mortgage with a higher interest rate, but lower fees are cheaper overall.”

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