Here at Progressive Property, we are getting a lot of questions from the public regarding the Bank of England interest rates and affordability issues. Much of this debate has been sparked by journalists with shock and sensationalist newspaper headlines (as is so often the case).
Progressive Property thoughts on interest rate rises
From a property acquisition [buying] perspective, it actually makes our job easier as the market slows and more stock remains unsold.
This means that we can start to negotiate it down after it has remained on the market for a few months.
I remember between October 2004 and the summer of 2005 when the market virtually stopped in Peterborough and went into slight reverse.
Deals were plentiful and I found it very easy to achieve 15%+ discounts on small existing properties that needed light renovation.
As the market picked up, those good buying decisions paid off and they have enjoyed great growth (with about 35% equity in them now).
How to Profit from interest rate rises
If we do see more substantial interest rate rises repossessions are likely to rise and dare I say it….more first-time buyers are likely to want to rent than buy, which produces more deals for our investors and you and more tenants to fill them with.
With rising interest rates many investors are starting to question how they can make their investments work, especially with the last MPC (Bank of England Monetary Policy Committee) decision to take rates to 5.5% and the probability of another 0.25% increase shortly.
However, these short movements should be viewed in the context of a long-term investment mindset.
Firstly, fixed buy-to-let mortgage rates are still available at 5.04% (2 yr product with Mortgage Express) with a 2.5% fee. This allows investors to ride out the current toughening cashflow environment with lower yields and higher interest rates until yields rise.
Certainly, all the signs are that rents are on the way up for the first time in years with some commentators suggesting that there has been an increase of 30% in London rents in 2006.
Indeed I watched a report just this morning on the BBC news in which it was stated that several London letting agents have reported that Landlords have been putting their rents up at the highest rate since 1998, the year that the UK Buy to Let market really got started.
Another way in which we are increasing cash flow for our investors is with houses of Multiple Occupancy (shared houses). Many of which can provide over £400 a month in income to a portfolio after costs and mortgages. These can act as great balancing agents.
As with most investments, the long term is the only way to analyse investment propositions. We know that property has risen by an average of 11.74% in England and Wales every year since the 60s according to official government statistics.
Even if the market only goes up by 3% this year (the figure is likely to be higher than this) an average £100,000 house would increase by £3000. If this property hasn’t cost anything in capital acquisition (the method by which we buy at Progressive) your return with £1000 cashflow loss (loss from rent not covering all costs inc mortgage, management etc) is still £2000 from an investment of nothing, equating to an infinite return on investment.
Learn more about how interest rates will affect the market
The video below will give you great tips on how to survive rising interest rates.
I hope this has gone some way to explain how we see things with the market at the moment, if you have any questions please join our Progressive Property Community.
