The Bank of England today announced a hike in its base interest rate from 0.5% to 0.75%, following a unanimous decision by the nine members of the UK's Monetary Policy Committee. In fact, the rise comes later in the year than was initially anticipated, following non-economic variable circumstances in the first few months of 2018 which led to minimal growth.
While the climb indicates that inflation is on or above target in forecasts leading up to Brexit next spring, it will naturally have some effect on already fragile confidence from both businesses and consumers.
For the real estate industry in particular, the new higher rate will automatically result in a rise in repayment costs for borrowers utilising variable/tracker mortgage products - an estimated 3.5 million residential mortgages equating to over a third of total real estate borrowing in the UK. On a £150,000 variable mortgage the impact is likely to be around a £224 additional cost per year.
However, in relation to a property investor's overall income and expenditure, this increased cost of servicing the debt is minuscule. The more positive outlook is that the average UK house price continues to follow its typical upward path at an increased rate, with year-on-year appreciation of 2.5% in July, up from 2% in June and considerably higher than the 1.9% forecast. This is assisted by the economy's current trend in which consumers are spending above their incomes and first-time buyers are stretching to join the property ladder.
It remains our firm belief that now is the time to retain existing property assets and to purchase additional units where possible, to enjoy future capital appreciation whilst generating a strong, consistent income from a quality tenant. It may also be an opportunity to remortgage and move away from a variable/tracker product, depending on your existing liability, fees and available rates. If you're looking to extract more from your real estate investments, speak to one of our experts.