Guaranteed Rental Income | How likely is an interest rate rise – and how will it affect homeowners?
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Guaranteed Rental Income | Homeowners around the country are awaiting news of an interest rate rise, with speculation growing that this will happen sooner, rather than later.
But exactly when should we expect it – and what impact will it have on UK property owners?
Firstly, the good news. A rise in interest rates is positive when put in context, it means that the economy is growing and that the Bank of England governor, Mark Carney, believes that the lending sector is healthy enough for him to put the Bank rate up. The bad news is that an interest rate rise will see monthly mortgage costs increase.
Mortgage payments currently amount to just over 30 per cent of take home pay, according to the latest statistics from Nationwide. Before the financial crisis, they were as high as 50 per cent. A significant reason for this is the static level of the Bank rate, which has been at 0.5 per cent since March 2009. Rent Guarantee Income
When to expect an increase
Back in August 2013, Mark Carney announced that a rise would only happen if unemployment fell to below seven per cent. At the time this was considered a couple of years off, but employment figures have risen faster than anticipated.
This has prompted Carney to move the goalposts, last week he said that the timing of a rise would be decided by a wider range of indicators. He also said that any rise would be gradual, which fits in with predictions offered by Savills.
They forecast the Bank rate at 0.8 per cent in 2016, 1.8 per cent in 2017 and 2.8 per cent in 2018. The impact, say Savills, would be mortgage rates rising from an average of 3.6 per cent today to five per cent in four years time.Guaranteed Rental Income
What the experts think you should do * Mark Harris, chief executive of mortgage broker SPF Private Clients, says that a fixed-rate mortgage may be the best option if you require "certainty" to help with budgeting.
"It is still possible to fix for five years at sub four per cent, which put into an historical context is a fantastic rate," said Harris.
Guaranteed Rental Income | 3Let allows you to guarantee your rent for a term of 1 to 5 years with our guaranteed rent services
Guaranteed Rental Income | Those currently on a fixed-rate mortgage will not see any impact on their payments in the short term, but may find there is a big jump when the time comes to renew.
This is compared to a tracker rate where payments will go straight up. Those with a variable rate are in the hands of their bank or building society, who can choose how much of the rate rise to pass on.
"By far the most popular product among our clients is a five-year fix as it gives security for a reasonable period of time," said Adrian Anderson, director of mortgage broker Anderson Harris.
Should you worry about a rise in mortgage rates?
It is only natural that a rise in interest rates and thus an increase in the cost of mortgages will send many people into a panic.
However, Brian Murphy, head of lending at the Mortgage Advice Bureau, said that any rise will "not be to a level that affects affordability".
"When being assessed for a mortgage, lenders have been far more diligent in ensuring that any prospective borrowers can afford repayments both today, and in the event of a rate rise," he continued.
As a result of the uncertain lending conditions following the financial crisis, banks and building societies have been "far more intrusive" in looking at a borrower's income.
"This increased diligence should help guard against future problems if and when rates rise," he reassured.
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