Interest Rate Increase

The UK is facing what could be one of the most concerning financial periods that we’ve seen for decades. With inflation shaking up everything from gas prices to the standard cost of a week’s shopping and interest rates rising faster than ever before, there is a level of uncertainty in the markets that is unsettling for buyers, renters and landlords alike. If you are a landlord and are concerned about how the rising interest rates will affect you, we are here to help.

Why Has There Been An Increase?

In August 2022, the Bank Of England (BOE) introduced an interest rate increase to 1.75%, a 0.5% increase and the highest in 27 years at the time. With inflation at around 9% in June, the interest rate increase was brought in in an attempt to cool inflation and tackle the pressure and was raised again to a whopping 2.25% in September. With inflation predicted to hit 11-13% over the coming months, interest rates are only expected to rise further or further measures will be needed. So, with the numbers jumping as much as they are, why exactly are we facing such financial turmoil?

Well, there is no single reason that can account entirely for the increase in interest rates – it seems to be a blend of a number of reasons all leading to an almost unprecedented level of inflation. The rapid and somewhat concerning increase in the cost of living has come about in recent months in a perfect storm, featuring a likely combination of the financial burdens of supply chain issues, a struggling economy post-covid, the war between Russia and Ukraine and, more recently, the somewhat controversial Mini-Budget. 

What Does This Mean For The Housing Market?

The changes in the interest rates will undoubtedly have an impact on the housing market, but the question is, will this be good or bad? For those looking to buy a home or enter a mortgage, the changing interest rates have been causing issues, with many first-time buyers having issues with getting affordable offers. The unpredictability of the economy has led to an equally unpredictable housing and mortgage market, with people even reporting that their offers are being withdrawn and re-issued with higher interest rates. 

On top of higher mortgage rates, buyers could face higher property prices and higher rental growth due to higher demand, particularly as people are forced to rent rather than buy while mortgage rates are so high. This demand could cause a higher yield for landlords, however, this yield will also come with higher maintenance and property upkeep costs, increased chances of rent arrears and other bills that are unable to be paid on time. Rent guarantee insurance can provide you with the extra piece of mind that you won’t be short on money if your tenants fall on hard times while living in your property. This insurance can help you stay standing financially while the tenant gets back on their feet and resumes their rental agreement.

What Can Landlords Do?

Landlords are facing a unique situation as these changes wash through the property market. On the one hand, those on a buy-to-let basis will be facing similar issues to those seeking or handling their own personal mortgages, with potentially higher mortgage rates depending on whether you are on an existing fixed-rate mortgage or not. However, you may also see higher demand for your property from tenants in need of a home while they are currently being priced out of buying their own. 

Despite this yield, however, times are likely to be tough for all involved. For landlords, in particular, your Landlord insurance will need to be updated and checked to ensure that you are adequately insured, not least due to the direct effect that supply chain issues have had on the industry. 

When it comes to determining the cover needed, particularly when determining the cost of a full rebuild, the rising costs of building materials due to shortages have joined with the rising interest rates to create the perfect storm. With a shortage in builders and therefore higher work rates due to demand, landlords are likely to need more substantial cover than in previous years. Having a specialist look over your property and insurance is vital to ensuring that you and your tenants are fully covered over the coming months. We can help you find the best prices and premiums for your policy and ensure that you are adequately insured.

Times are tough and the housing market is set to be full of uncertainty for months to come. As the UK moves through these unsure times, having the right insurance policies in place can help you to ensure that you and your tenants remain safe and financially protected in the meantime. For more information about our Landlord insurance policies or for help with getting a quote for your property or portfolios, simply get in touch with a member of our team here at Ashburnham Insurance.

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