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Landlords are riding an economic rollercoaster as the cost of living, house prices, and rents are shooting through the roof in January 2022. The Bank of England has doubled the official interest rates to 0.5 per cent, the highest level since March 2018.
Although doubling the rate sounds like a significant jump, it has held at 0.75 per cent or less since January 2009 and is nowhere near the 15 per cent rate of the early 1990s. The rate was increased as a brake on inflation, which could hit 7.5 per cent by April 2022.
Adjusting the rate is a tool for making borrowing more expensive, which the government hopes will take the heat out of the economy. The Bank’s inflation target is 2.5 per cent and may take some time to settle back to such a low figure. Read on to find out how a rising cost of living can impact landlords.
Fixed-rate mortgages have changed the monthly worry of variable rate home loans rising without warning to disrupt budgets. Most landlords will have a fixed-rate loan against their homes and rental properties, which means no change in monthly payments until the fixed deal is up for renewal. Lenders have yet to publish their revised buy-to-let mortgage rates following the Bank of England rate-setting announcement.
How tenants react to cost of living increases may reflect in rent arrears as cash is diverted to paying heating bills. Data from the Office for National Statistics shows rents are rising by 1.8 per cent a year.
The average tenant now pays £1,064 a month. Chancellor Rishi Sunak has revealed the government proposes to offer households a winter heating cash-back comprising a £150 non-repayable grant followed by a £200 loan repayable over five years.
Government cash amounts to around half the average £693 rise expected in heating costs when energy regulator Ofgem raises the price cap to £1,971 yearly.
The grant is only for homes in the A to D council tax bandings and will be paid in April 2022 as a council tax reduction.
A 1.25 per cent rise in the cost of national insurance contributions is expected to add even more stress to families struggling to cope with the soaring cost of living.
The NI rise aims to raise £12 billion a year for The Treasury as an offset against the government's spending to tackle the coronavirus pandemic.
The NI grab nets every worker over 16, earning more than £184 a week and any self-employed worker making a profit of £6,515 a year or more. The extra tax ranges from £130 a year for the lowest-paid to £880 a year for wealthy taxpayers earning £80,000 or more. Workers earning less than £9,880 a year are unaffected.
The rise comes into force in April.
Although 2012 was a record year for house prices sparked by the stamp duty holiday, the market is expected to stabilise this year. The average home is worth an all-time high of £254,822 after a £24,000 jump in 2021.
The first house price report of 2022 from building society The Nationwide reported prices were up another 0.8 per cent in January - an annual increase of 11.2 per cent compared with 10.4 per cent in December. Property portal Rightmove reports that 38 per cent of owners accepted offers above the property’s asking price in December.
Estate agent Savills has slated a 3.5 per cent house price rise for 2022.
However, James Tatch, head of data and research at UK Finance, said: “We’re seeing a return to a stable path for new lending from 2022 onwards.
He said more remortgaging was expected to occur in 2022 and that this could accelerate in 2023 as many five-year fixed-rate mortgage deals will end in two years, and borrowers will want to refinance these loans.
“That will provide a boost to remortgage numbers,” Tatch said.
He also predicts the trend of people leaving cities as employers offer more flexible working conditions could continue.
“It seems like it hasn’t run out of steam yet,” he said.