Interest Rates Held at 5.25%: What This Means for UK Property Investment

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How Do the Latest Interest Rates Affect UK Property Investment?

The Monetary Policy Committee of the Bank of England has opted to maintain the Bank Rate at 5.25% with a 6-3 majority vote, which did not surprise anyone amid persistent concerns about the resurgence of inflation in the UK economy.

The Bank of England’s deliberate and gradual approach to economic management is yielding positive results, as shown by a significant drop in inflation this week.

The decision to keep the base rate stable today is expected to bring added optimism to the economy, especially in the property market.

Let’s see how these interest rates could affect buy-to-let investors over the next year.

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How Does This Housing Market Look in the Face of Held Interest Rates?

According to Matt Smith, mortgage expert at Rightmove, as many individuals grapple with the pain of rising rates, clear indications suggest that Base Rate increases are genuinely steering inflation in the right direction. The most recent decision to maintain the Base Rate reflects the Bank’s cautious approach, ensuring it doesn’t prematurely increase or decrease rates and aims to sustain the current stability.

Once again, the property market has demonstrated increased resilience, as the unexpected rise in inflation a few weeks ago did not disrupt the downward trajectory of mortgage rates. Further increases in the Base Rate are unlikely, and there is room for mortgage rates to decrease before reaching a plateau.

The housing market has witnessed a promising start to the year, with more individuals listing their homes for sale, exploring purchases, or simply weighing up the pros and cons of buying a rental property.

Find Out More: If you are from outside the UK, you may want to check out our guide on buying a house in the UK as a foreigner to help you enter the UK buy-to-let market.

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Will Interest Rates Affect House Prices This Year?

Tom Bill, Knight Frank’s head of UK residential research, points to a potential rise in property prices this year as mortgages become more affordable than last year.

While there was never any doubt about the decision to maintain, the positive news for the housing market lies in the fact that inflation is anticipated to decrease more rapidly than initially guided by the Bank of England.

Buyers or those considering remortgaging should consider the Bank of England’s cautious stance. It’s important to note that lenders determine their fixed rates based on market expectations, regardless of whether these expectations materialise.

With an improving economic outlook, Knight Frank anticipates a 3% increase in UK house prices this year.

Stay Informed: Make sure you know your buy-to-let incomings and outgoings with our buy-to-let income calculator and stamp duty calculator.

Will Interest Rates Come Down When Inflation Hits 2%?

As well as announcing its interest rate decision, the Bank of England released its inflation report.

According to the report, inflation should fall much quicker this year. Currently, the Bank of England predicts that inflation will drop to 2% between April and June.

But there is still a question mark on when that will start affecting interest rates.

The governor of the Bank of England, Andrew Bailey, says: “We need to see more evidence that inflation is set to fall all the way to the 2% target and stay there before we can lower interest rates.”

So, is buy-to-let a good investment even when interest rates are high?

Well, mortgage lenders have reacted to the stabilising market by cutting rates, indicating a cautious optimism among those who watch the industry closely. With rental growth of 6% expected this year, we may see more buy-to-let investors take a chance on the market in search of lucrative gross rental yields. This could be particularly true in areas like the North West, where the buy-to-let sector is forecast to enjoy 9.2% returns over the next 12 months, according to the Savills Cross-Sector UK Forecasts.

For more buy-to-let insights in the UK, read some of our area guides, including: