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22 Jun, 2023

Interest Rates Rise in the UK – What Does This Mean for Buy-to-Let Investments?

    Rising Interest Rates and Buy-to-Let Investments

    The Bank of England is raising interest rates for the 13th time in a row this week, which has many concerned about the UK’s economic situation and how this could affect the property market.

    As inflation has remained higher than expected, with the rate remaining at 8.7% in May, the Bank of England is raising the interest rate to counteract this price hike. This raise will put interest rates at 5% – a rise of half a percentage point, the highest level in 15 years.

    Current predictions indicate that interest rates will rise further to 6% after this thirteenth raise, and remain at this level until 2024 at the earliest.

    This is naturally going to hit mortgage rates hard, and many investors are worried about how this will change the buy-to-let property market. However, investors shouldn’t avoid making a buy to let purchase due to these circumstances, and in this blog you’ll find out why.

    Keep reading to discover why interest rates are rising, how this will affect buy-to-let investments, and what you can do to avoid it.

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    Why are Interest Rates Rising?

    The main reason the Bank of England is raising interest rates is to counteract the period of inflation that the UK is currently facing.

    This has been caused by the cost of living crisis, where prices of everything from flights to supermarket foods have risen to put a strain on many people’s bank accounts.

    The Bank of England has risen interest rates in the past to try and combat this inflation, but unfortunately, they haven’t had a huge amount of effect so far.

    With inflation remaining at 8.7% in May, the Bank of England has little choice but to raise the rate of interest further to try and combat this.

    While it was expected that the rate of price rises would have some effect on the economy, the fact that inflation is still so high is alarming.

    The only tool that the bank has to try and slow this rate down is rate raises, which is why we have seen so many in the past months.

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    What Does This Mean for Buy-to-Let Investments?

    Given that mortgage rates are set to rise because of the rising interest rates, many buy-to-let investors will be having to pay more on their mortgages as lenders raise their rates to meet the Bank of England’s base rate.

    It’s worth noting that although the Bank of England is raising their rates to 5%, mortgage lenders’ rates will be a lot higher than this. Especially with buy-to-let mortgages, rates are often a lot higher than standard residential mortgages due to the higher risk of them not being repaid.

    Buy-to-let mortgage repayments cover the accrued interest of the mortgage, so monthly repayments will be set to rise.

    Because of this, buy-to-let mortgages are expected to become less popular with investors in the immediate future, as many will not want to deal with the higher interest rates and would rather invest in property through other means.

    If you’re interested in investing in buy to let property, however, don’t let this news deter you. There are alternatives to using a buy to let mortgage when purchasing buy to let property that actually come with a lot of extra benefits for investors.

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    How Can I Avoid The Rising Interest Rates?

    One of the best ways to avoid borrowing a buy-to-let mortgage and the rising interest rates is to invest in off-plan property.

    Off-plan property is property that is still under construction or being developed, allowing investors to secure units in new-build properties before they are available to tenants.

    Because it is still being developed, off-plan property is often sold for below-market-value prices so you can buy brand-new units for far cheaper than they should cost. For many investors, this will mean you can avoid buy-to-let mortgages altogether.

    For those who still need to spread out the cost of investing, many off-plan properties have payment plans set up to allow you to pay portions of the cost at different stages of development. Often, this means securing a unit in an off-plan development with as little as a 20% deposit.

    By investing in off-plan property, investors can spread out the cost of investing and not have to pay a big lump sum all at once, while also avoiding the rising interest rates that come with a buy-to-let mortgage.

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    Learn More with RWinvest

    Here at RWinvest, we have over 18 years of experience in the buy-to-let market, meaning we have a great understanding of how mortgages have changed over time.

    We keep a close eye on the property market, to keep our clients up to date with the latest and most relevant news, as well as how it will affect buy-to-let investments.

    With top-quality off-plan investment properties in some of the best places to invest in UK property, it is easy to see why we have a track record of delivering high returns for our clients.

    Contact us today to learn more about property investment, and what we can do for you!

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    Reece Pape

    Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.

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