“Interest rates predicted to rise to 1.75% over the next 4 years.”
“Tax relief reduction for buy-to-let landlords, from up to 45% to down to 20%.”
“We won’t be able to afford our mortgages anymore.”
“Buy-to-let landlords will throw their properties en masse onto the market
because of the new tax regime and cause a property slump.”
“Forty years of darkness, earthquakes, volcanoes!”
“Human sacrifice, dogs and cats living together…mass hysteria!”
Okay, the last two are actually lines from Ghostbusters but are similar in causing unnecessary panic if you immediately believe the headline; something I regularly warn against as they are designed to get your eyes to light up.
And here’s why I wouldn’t run for the hills in respect of the first four of these quotes…
The margins…a trip back to the ‘good old days’ of 2007 shows that variable tracker rates were available at 0.4% over the Bank of England base rate in a mortgage market where lenders were jostling to get your mortgage business. Strangely, today these are typically 1.25 to 1.5% above the base rate (0.5%) at a time when lenders are more inclined to portray themselves as ‘doing you a favour’ in lending. Quite simply, the lenders are making more profit from fewer mortgages. However, this will change as the market ‘loosens up’ and homebuying and moving return towards the historic normal levels. In other words, your 1.75% to 2% tracker at today’s money only becomes a 2 to 2.25% tracker when the base rate reaches 1.75%. The cost of the interest therefore only increases £20 or so a month; hardly likely to cripple the homeowner!
The reality…existing landlords may have had it rather too good for a while and, as largely seems to be the case with most things making money, they have become a prime target for taxation. However, with buy-to-let mortgage rates from 1.75% initially available today and yields of 3.5 to 4.5% commonly available, this is unlikely to stress the day-to-day ownership of a suitable investment. To date we have seen no sign of our landlords looking to ‘cash out’ and this is echoed by many other industry professionals. Furthermore, why would they look to sell now, or in the near future, when many respected commentators are predicting 25% capital growth over the next 5 years, which is the main purpose of buy-to-let?
In summary, m’lud, I would like to draw the jury’s attention to the considerable growth still predicted and that mortgage rates are likely to absorb a large percentage of the base rate edging upwards, so there is little to fear. Additionally, with a more competitive mortgage market we should get back to the first-time buyer being able to secure a 95% loan at an attractive rate; and then Britain really will be moving again!