The Bank of England raised interest rates by 0.5 percentage points to 5 per cent at its June meeting, the 13th consecutive increase. While this latest rate rise did not come as a surprise given stubborn consumer price inflation (CPI) sticking at 8.7 per cent in May, the size of the increase was somewhat unexpected. Yet with seven of the nine-strong Monetary Policy Committee (MPC) voting for a 50 basis-point rise, and with only two members voting to maintain base rate at 4.5 per cent, the vast majority of the rate setters seem convinced that a more aggressive rate increase was necessary.
While economists had predicted stability by now, global factors are still impacting inflation, while the cost-of-living crisis shows no signs of abating. With inflation still well above the Bank’s 2 per cent target, further rate rises cannot be ruled out. The Bank said that CPI inflation ‘is expected to fall significantly further during the course of the year’, mainly reflecting developments in energy prices but warned that it would ‘continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation’. It warned that if there is evidence of ‘more persistent pressures, then further tightening in monetary policy would be required’.
Meanwhile, house price growth slows gently…
Despite so many interest rate rises coming so close together, property prices are still higher than they were a year ago, rising 3.5 per cent in the 12 months to April 2023, according to the Land Registry. However, the pace of growth is slowing, as these figures compare with 4.1 per cent in the 12 months to March 2023, underlining the lack of confidence or ability for buyers to actually buy.
With transaction volumes nearly 40 per cent lower than this time last year, one would have expected a higher rise in property prices but with interest rate rises showing no signs of abating, many buyers are waiting to see how the market adapts and what the ‘new norm’ will look like. Sellers who price attractively are selling, but very few properties are now getting multiple bidders above asking price.
With the government pledge of halving inflation by the end of the year looking less and less likely, it could be time for it to start helping in the push to bring some confidence to the market. This could take the form of lower rates and/or assistance in reducing stamp duty, which is urgently required in order to give the wider economy a boost.
… while there are still opportunities in buy-to-let
While landlords are also facing higher mortgage costs, rents are also rising, helping offset the former. Indeed, we are still seeing a large volume of buy-to-let transactions across all types of properties, particularly houses in multiple occupation (HMOs) where people are looking to convert properties and capitalise on the additional rental income, therefore helping with affordability now that rates are higher. Landlords are essentially pivoting to make their assets work for them. An increase in HMOs also provides more options for tenants who are in need of more affordable accommodation.
How MT Finance can help
Landlords looking at ways to offset high mortgage rates may wish to consider incorporation. While lenders tend to stress limited companies at 125 per cent, helping with affordability on applications, some, including MT Finance, will also take a view on landlords transacting in their sole or joint names, and stress at 125 per cent across the board on five-year products.
As the market continues to face multiple pressures, it is essential that lenders are flexible when it comes to assessing applications in order to try and make them work. At MT Finance, a hands-on approach is one of our unique selling points: we always try where possible to find a solution that is in both the broker and client’s best interests. Communication really is key, particularly in these times.
To contact the team, call us on 0203 051 2331, online or via enquiries@mt-finance.com.