Buy to let landlords can expect mortgage interest rates to start rising in around a year’s time, according to the outgoing Bank of England deputy governor.
Charlie Bean explained new governor Mark Carney was not keen on lifting the interest rate too quickly even though the economy might benefit from an earlier increase in the official bank rate.
The Bank of England has resisted calls to increase the rate due to concerns that the finances of businesses and homeowners are not strong enough to pay extra on borrowings.
The interest rate has been pegged at 0.5% since March 2009.
Before that, said Bean, the official interest rate was an average 5% for around 10 years before the credit crisis began to bite in 2007.
“It’s reasonable to think that given the headwinds that are still out there as well as some the global forces that perhaps the level that we go to three or five years out might a couple of percentage points below that,” he said.
How raising the official bank rate would affect buy to let mortgages is an unknown factor.
Current best buy fixed rates and trackers are at interest rates of 3.29% and 3.49% over two years, reverting to just below 5%.
Using the same differential between the official interest rate and best buy landlord loans, which is 2.75% to 3%, property investors could expect to see a mortgage rate of around 6.75% to 7% in 36 months or so.
That would take the cost of a £100,000 interest only buy to let mortgage from £274 a month to £562 a month.
If rents rise at the same rate as the cost of living – a targeted 2% a year over the same period – landlords will see average rents rise from £848 to £899 a month, according to figures from rent insurance specialists Homelet.