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If you are a landlord looking for the silver lining in a dark cloud, June’s interest rate decision will have certainly rained on your parade. In a shock move, the Bank of England ignored calls to freeze the base rate and bypassed a more modest 0.25% rise in favour of a 0.5% jump. The new base rate of 5% has not been seen since April 2008.

In May, a survey by Finbri indicated that a number of landlords would sell their buy-to-lets if the base rate kept rising. In fact, 44.66% of landlords questioned earlier in 2023 said they would dispose of their assets if the base rate pushed past 4.5%. Of those, 45.35% said they would look at alternative investments to buy-to-let. Now, with a 13th consecutive rate rise, a 5% base rate and inflation stubbornly holding at 8.7%, landlords should seriously examine their property investment strategy.

“Landlords have to look at the holistic picture when digesting June’s base rate rise,” says Open Property Group’s Jason Harris. “The new 5% rate is designed to help bring inflation under control, which remains quadruple what the Government wants it to be. Inflation is not behaving, therefore a further base rate rise to 5.25% or even 5.5% can’t be ruled out.”

Jason points out that high inflation puts pressure on all aspects of property investment: “Not only is there potential for mortgage rates to climb further – bad news for landlords who need to remortgage soon - everything else is more expensive too. Budgets will need to account for costlier insurance premiums, soaring service charges and rising property maintenance costs.”

On the latter, increasing property maintenance expenses can be attributed to the cost of materials used widely in the residential sector, which rose by 4.7% in April 2023, when compared to the same month in 2022. April’s increase followed a 8.7% rise in March 2023 to compound the issue, according to the Building Materials and Components statistics released by the Government.

“Ironically, the increasing base rate means that cash is looking more attractive placed in ISAs and everyday savings accounts,” comments Jason. “With bank and building society returns of between 5% and 9% now commonplace - and with many buy-to-lets loaded with price appreciation accrued in the pandemic – now is a good time to cash in. We can’t say if a property price correction is on the cards or how much values may fall by but Open Property Group is increasingly working with landlords who are sceptical about future prospects.”

Rising rates – both base and mortgage – have already started biting in the buy-to-let sector. Data analysis from Zoopla found that landlords are beginning to sell property fast. In May 2023, the portal found 1 in 10 (11%) of homes listed for sale during its analytical period were previously rented out.

Fascinatingly, even when sold on the open market, these former buy-to-let properties had an average asking price that was 25% lower than properties that were being sold by owner occupiers (£190,000 v £250,000). Zoopla didn’t add whether the former rental properties were being sold with short leases, tenants in situ, poor EPCs or were in a substandard state of repair but all these factors are linked to lower-than-average values.

Landlords have more to contend with than just values on the open market. In June 2023, analysis of Connells Group data by Hamptons found houses were taking twice as long to sell as they did a year ago. The research illustrated that it took sellers in May 49 days just to find a buyer – up from 26 days in May 2022. When Hamptons drilled down further into the data, it found four-bedroom houses were the slowest to sell, taking an average of 60 days to find a buyer.

“Landlords wishing to exit the buy-to-let market with speed need to compare the findings of Hamptons with the timescales we offer at Open Property Group,” says Jason. “We make almost instant offers direct to the seller, are now averaging just 29 days from offer accepted to exchange, and an average of just 42 days from offer to legal completion.”

Earlier in June, Which? observed that buy-to-let mortgage rates were rising for the first time in seven months in anticipation of Bank of England base rate hikes. With a rise now confirmed, it’s widely expected that remortgaging costs for landlords will further increase. “Those with fixed-rate deals expiring soon will feel the pressure most. An express cash sale is the quickest way to settle a mortgage debt and halt eye-watering repayments,” adds Jason.

Open Property Group can act decisively as we are professional cash buyers. We bypass the open market, portal listing, marketing and viewing stages by making a fast, direct cash offer to landlords. We offer on all buy-to-let types, regardless of condition, location and circumstances. If a 5% base rate has you worried, please contact our team for advice and strategy planning.

Published on 26th June 2023

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