I believe, that the recent rate rise will not have as strong an impact as many people think. A distinction needs to be made between fixed rates and floating rates. There are various names like Base Rate Tracker, Standard Variable Rate, Discounted Rate, Capped Rates and so on, however, if you strip out the various names, there are only two types of products on the market: one which goes up and down, and the other which stays fixed. If we look at the latter, the correlation between mortgage products and the base rate is not as close as it once was. Most of the mortgage products for BTLs have been a lot higher than the base rate for many years, already incorporating anticipated rate rises within their current rates; it’s easy to see why there’s not much room to fall, probably zero chance, and there’s only one direction to go, which is upwards.
A cursory scan of products shows 75% LTV Buy To Let products floating around the 2.75% range, these are fixed rate products varying from two to five years. This is five times the new base rate. In contrast there existed a closer relationship between mortgage products and the base rate when it was around the 5% mark, in the pre credit crunch era, with it peaking at 5.75% in 2007. I remember a 90% LTV self cert mortgage product at the time offered by Mortgage Express at 4.99%, fixed for seven years; this was with a 5.25% base rate in the background. This product was priced to actually incorporate a rate drop during its term.
The rate rise will of course affect those on a Base Rate Tracker and variable rates. The effect of the rise will be felt without much time lag.
The rate of 0.5% has been in existence since May 2009, with a further drop, to 0.25% in 2016. Those who took a base rate tracker or a discounted rate prior to 2009 have been on a long honeymoon period, and everyone knows honeymoons are not meant to last this long. I even heard of one borrower who was on a Discount Rate of 0.69% below base. When the rate went to 0.5% he would have been on a rate of -0.19%. This would mean, technically, the bank should be paying him every month! However, there was a clause in the contract which meant he had to make a nominal monthly payment.
The real question is what impact this will have on the property market. The market has taken some hits in recent years, and a rate rise doesn’t help. Although, the extent of the impact this rate rise will have, in my opinion, has been exaggerated.
The market will evolve with the changes. Increasingly, we are seeing investors that are seeking opportunities further from their tradition London base. Foreign money is still coming to the UK, due to unstable geopolitical situations in countries like Saudi Arabia, Kenya and India. This combined with the soft pound means UK property is still an attractive proposition. Traditionally, foreign money would be attracted only to Central London, however, we are finding foreign investors to be far more astute and savvy and are concentrating on returns rather than postcode.
Q: My agent has told me that my property isn't letting because my EPC rating is too low. Would this really be an issue?
A: Before I answer that, I would like to start off with a question of my own, why have you not given your property to us to let for you?
Heating and energy bills are always likely to be an area of interest to tenants, as in the current economy every penny helps. If your rating is E or below this may be a factor, but should not affect the marketing, overall, of the property; even when the bills will increase in homes across the UK during the winter. Many landlords / investors won't be affected by this. If you are a D or above this does not stand out too much on the marketing information, however, if you are affected it might be worth making a few little changes before you have an EPC carried out, or another one carried out. Changes like secondary/double glazing, insulating cavity walls or even changing all the bulbs to A rated LEDs instead of the filament bulbs can all help.
The National Landlords Association (NLA) has listed five main reasons why it believes energy efficiency is an important consideration for anyone letting their investment out. Firstly, the overall value of the property can be greatly increased if it is given some care and attention over time. Energy efficiency improvements can help to reduce the risk of damp, condensation and mould growth, and this little bit of extra effort can have many positive implications and reduced levels of work for you in the future. Not only will the improvements be demonstrated whenever you choose to sell, but its value will be maximised as a well-maintained property will be more attractive to potential buyers.
There is more good news as the government provides money for those with a rental agreement to make these improvements. Covering cavity wall and loft insulation, dry-lining for solid walls, draught proofing and hot water installation, the Landlords Energy Saving Allowance enables landlords to potentially claim back up to £1,500 per dwelling. Another benefit to be gained from considering energy efficiency is the happiness of the tenants, something that shouldn't be overlooked when you have an empty property and are looking for new tenants.
It is a legal requirement for landlords to provide an energy performance certificate (EPC) for any rental agreement drawn up after October 1st 2008; and the energy rating must be published when marketing the property. This must be produced by an accredited energy assessor and shows the current rating, as well as any improvements which could be made.
I would not say that the EER (energy efficiency rating) would be the major problem, however, having a high rating would benefit everyone all round. Please feel free to get in touch, if you would like us to help find a tenant for you.