Mortgage broker, Hamilton Fraser Total Landlord Mortgages explains the current predicament landlords have with whether to stick or twist on mortgage rates as inflation bursts through the Bank of England target.
The year-on-year cost of living surged from 1.5 per cent in April 2019 to 2.1 per cent in May, nudging above the Bank of England’s self-imposed two per cent ceiling.
The latest report from the Monetary Policy Committee – the team of rate-setters – reveals inflation is 0.3 per cent higher than expected and is forecast to soar above three per cent due to rising energy and commodity prices.
“The committee’s expectation is that the direct impact of rises in commodity prices on inflation will be transitory. More generally, the committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target inflation. After which growth and inflation will fall back. There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected,” says the BoE.
Rate setters next meet on 5 August 2021 and have yet to reveal their hand on which way interest rates will go.
Are mortgage rates set to rise?
The current Bank of England interest rate has sat at a record low of 0.1 per cent since March 2020. Raising the rate will likely see buy to let mortgage rates rise as well.
Current best buy to let mortgage rates range from 1.19% for a two-year fix to 1.65% for a five-year term.
Remortgaging now means locking into the current rate as a safety net if inflation continues to rise, explains Total Landlord Mortgages Principal Daniel Lee.
“With inflation rising above the Government target, will this trigger a rise in the coming months? I think we will see the rates remain low for the foreseeable future, but we have to keep a close eye on where inflation is going. Is this a short-term blip or here to stay?” said Daniel Lee.
Time to review portfolio borrowing
There has never been a more important time to look at your portfolio, get the right advice and assess two-year rates against five-year rates
Generally, landlords should keep an eye on interest rates to keep a lid on property costs.
Daniel Lee added that many landlords need to pay extra attention as they exit five-year fixes following the buy to let bonanza lead up to introducing the three per cent investment property surcharge in April 2016.
Sting in the tail for 80 per cent loans
The Mortgage Works (TMW), the buy to let brand of The Nationwide and one of the UK’s largest landlord lenders, is again offering 80 per cent loan-to-value mortgages for purchases, remortgages and further advances, including buy-to-let. But they have insisted that all rental properties must have an EPC rating of C or above to be eligible.
Daniel Lee (pictured), Principal at Total Landlord Mortgages says, “The decision to begin once more offering 80 per cent LTV mortgages is a significant vote of confidence in the buy to let market after a difficult period.”
The move aligns TMW with several smaller lenders in the buy to let market and likely signals a similar shift may follow from other leading lenders.
The Government has already announced that all private rented homes must match the EPC C rating by 2030 and this new requirement is an indication that The Mortgage Works is behind the Government’s environmental policy.