Bank Rate or Base Rate – What is the Bank Rate and how will it affect me as a property investor?
The Base Rate is set by the Bank of England for lending to other banks, used as the basis for interest rates generally.
The Bank Rate affects the interest paid by banks and financial institutions on savings and the interest they charge on mortgages and finance.
It is reviewed monthly by the Bank of England’s Monetary Policy Committee changing to reflect the needs of the economy: inflation, employment, house prices etc. In fact, along with the money supply (total amount of money in circulation) interest rates are one of the main tools the government (and the Bank of England) use to control the economy.
When interest rates are low it means that property investors can borrow money and easily cover their mortgage payments from the rental income of the property. As property prices increase, and mortgage payments rise due to rising interest rates, it becomes increasingly difficult buy property and to cover mortgage payments from rental income alone.
It means therefore that investors must put more of their own money into the investment and rely less on borrowed funds. Another solution is to increase rents, but this is not always possible in a competitive letting market.
Note: never rely totally on these standard answers. Before taking action or not, always seek professional advice with the full facts of the case and all documents to hand. LandlordZONE.co.uk