Rising interest rates fuel the private rental sector

We have just emerged from the longest low interest rate environment since Bank of England records began. After 13 years of cheap money and low-cost borrowing, everything suddenly becomes more expensive, pushing people to rent property and driving up rents.

The UK has moved from a Bank of England base rate of just 0.10% to an environment where interest rates are rising faster than almost anyone expected.

Many people late last year expected interest rates to hit 1% by the end of 2022 for the first time since March 2009. interest increases by maybe 0.25% every quarter. But the base rate is already at 1.25% and, with CPI inflation at 9.1% in the 12 months to May 2022, the Bank of England is unlikely to be able to do more than continue to raise rates.

Even at over 9%, the consumer price index has long been overtaken by rising house prices which saw an annual increase of 12.4% in April according to the latest UK house price index. of the HM Land Registry.

Despite government incentives to help with home buying, it is more difficult than ever for some population groups to move up the housing ladder. This in turn dramatically increases the demand for high quality private rental properties.

Perhaps, as a result, demand from property owners and investors remains strong. Rents remain high as tenant demand outstrips supply. In fact, the demand for rental properties in some areas is so competitive that tenants have entered into rental agreements for properties they have only viewed online and even watched as they seek to outbid their despair of having a place to live. The Deposit Protection Service (DPS) Rent Index released in June revealed how average rents in the UK had risen for six consecutive quarters in the first quarter of 2022.

This means increased returns for homeowners, especially for those with longer term fixed rate mortgages. The shift to long-term solutions is also changing the shape of the rental mortgage market as demand grows for seven- or even ten-year fixed rates. Two or three months ago, few owners were even considering taking anything other than a five-year solution, but with interest rates heading north, longer-term solutions are eminently sensible for owners. who intend to stay invested in buying-renting property and want to be able to control at least part of their expenses.

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