A recent study by Finbri has found that 67% of property investors are increasingly concerned about rising finance costs, as high interest rates and inflation continue to impact the market.
Despite the Bank of England’s recent decision to cut its base rate by 0.25% to 5% earlier this month, the benefits appear to be limited. According to Finbri, these reductions primarily favour those with variable-rate mortgages or those able to remortgage, leaving many investors grappling with high borrowing costs.
The survey highlights a growing unease among landlords, who are particularly worried about how inflation and interest rates are affecting their financial commitments. In 2019, the average buy-to-let (BTL) mortgage rate was 3.5%, with some lenders offering rates as low as 1.40% to 1.99%. However, the landscape has shifted dramatically, with the average fixed BTL rate rising to 5.45% by the start of August, following 14 consecutive Bank of England base rate hikes since the pandemic.
Inflation is further compounding these challenges by eroding purchasing power and driving up costs for essential property-related expenses, the study notes. A significant 77% of investors labelled this as a major ongoing concern. Additionally, the cost of general property maintenance and refurbishment has surged by 14% since 2021 due to increased material and labour costs.
The report also points to a noticeable slowdown in the buy-to-let market. The number of new BTL loans issued in the first quarter of 2024 fell by 16.7% compared to the same period last year, reflecting a more cautious lending environment.
While the recent base rate cut may offer some relief, its impact is uneven. The report states that those with variable-rate mortgages or the ability to remortgage now could see lower monthly payments, potentially improving cash flow. This could also make new property purchases more attractive, as borrowing costs may become more favourable, potentially leading to an uptick in transactions.
However, the benefits for investors with existing fixed-rate mortgages are less immediate. The study underscores that these investors will not see an immediate reduction in costs, as the rate cut’s influence on fixed-rate deals is indirect.
Alongside interest rates, property investors are also closely watching property values and rental yields. The latest Nationwide House Price Index reported a modest 0.3% increase in July, resulting in an annual growth rate of 2.1%. Meanwhile, the average rental yield in the UK stood at around 5.37% in July, up from the 4.5% to 5% range observed at the beginning of 2023, depending on the region.
Stephen Clark, founder of Finbri, commented on the findings, stating: “Property investors have seen financing costs skyrocket over the past five years, and the challenges for the private rented sector remain significant. Any interest rate cut is undoubtedly welcome news, but the August 0.25% reduction alone is unlikely to significantly ease property investor financial concerns.”
The survey polled 600 UK property investors, offering a snapshot of the current sentiment in the market amid ongoing economic pressures.