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TODAY'S OTHER NEWS

Landlords warned to remortgage before further interest rate rises hit

Property management firm, DJ Alexander Ltd, has advised landlords to remortgage before further increases in interest rates.

The firm found that one in three landlords are already paying too much for their mortgages and that interest rate increases will only worsen the situation.

Alan Kent, head of financial services at DJ Alexander Ltd, explained: “We’ve already seen landlords who have had the same mortgage for years and are experiencing falling yields and the likelihood of further interest rate rises will only compound this situation.”

He said that if a landlord is on a lender’s standard variable rate, then it is highly likely that this will increase with each interest rate rise, resulting in ‘an erosion of the profitability of the property investment’.

With the base rate now at the highest it’s been since March 2009, Kent believes there are signs that the Bank of England will start to increase rates on a regular basis. This could lead to limited potential for income growth among landlords and property investors.

He explained: “A decade ago the base rate was 5% and lenders variable rates were typically 1-2% higher. However, throughout Q4 2008 and Q1 2009, there was a sharp reduction in the base rate but not a comparable reduction in rates charged to customers.”

“It will be interesting to see whether lenders will be keener to pass on these interest rate increases in contrast to their reluctance to reduce rates 10 years ago.”

Kent warned consumers to shop around to get the best rate for themselves, as this interest rate cute may cause competition between lenders who wish to attract new business.

He also recommended that landlords monitor their borrowing costs closely and shift lenders and rates where possible to give themselves the greatest opportunity for an improved yield on their investment.

“Of course, financing is just one of the key elements of successful property investment, but it is a core part of the business and all too often is left unchecked,” Kent concluded. “The Bank of England’s decision to raise rates should be a spur for landlords and investors to look at their borrowings and act now before further increases occur.”

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