Housing

Renters fear landlords will pass on biggest interest rates hike in 27 years

The Bank of England has raised interest rates to 1.75 per cent – the highest rate since 2008 – and increased mortgage costs could be passed on to renters.

bank of england raise interest rates but what will it mean for renters

The Bank of England has raised interest rates to tackle inflation but it means homeowners are paying more for mortgages and that could see landlords putting up rents. Image: Robert Bye / Unsplash

The Bank of England (BoE) has announced the biggest interest rate rise in 27 years – and it could mean renters see record rents rise even further.

Interest rates now sit at 1.75 per cent – the highest point since December 2008 when the UK was battling the global financial crisis. BoE governor Andrew Bailey greenlit a 0.5 per cent rise on Thursday – the largest single increase since 1995.

The BoE has been raising interest rates in recent months to tackle surging inflation, which is now at nine per cent and is predicted to rise to 13 per cent by the end of 2022, driven by rising energy bills. The UK is also forecast to go into recession in the last three months of 2022.

Raising interest rates encourages people to save rather than spend and increases the costs of mortgages for homeowners who are forced to pay higher interest rates. There are fears that these higher costs could be passed on to renters.

“This interest rate rise will do nothing for renters who are bearing the brunt of the cost of living crisis, facing soaring utility bills with no control over the energy efficiency of their homes,” said Dan Wilson Craw, deputy director at Generation Rent.

“Rising rents in the market mean that it is easy for landlords to raise the rent on existing tenants. Mortgage costs have little to do with it – after all, landlords didn’t cut rents en masse when interest rates fell in the 2010s.

“The government needs to freeze rents and pause evictions until the crisis is over to stop rising rents adding to the crisis for renters.”

Rising interest rates remain a concern for almost two-third of Brits, according to a new poll from Ipsos, particularly among younger people and renters.

Eight in 10 of the adults aged between 18 and 34 quizzed by Ipsos said they were concerned about interest rate hikes compared to 63 per cent of 55 to 75 year olds.

Meanwhile, 47 per cent of the 1,757 adults polled said they were concerned about rising house prices with a similar amount indicating they worried about rent and housing payments (45 per cent) and rising rents (44 per cent). 

Concerns over making rent or mortgage payment worried 63 per cent of Londoners while 59 per cent of 18 to 44 year olds across the UK said they were concerned, compared 22 per cent of 55 to 75 year olds.

Gideon Skinner, head of political research at Ipsos, said: “This research also shows that while concerns about the cost of living, bills and savings are shared across all age groups, worries about housing costs (and rising house prices) are particularly acute among younger people, who are already more likely to say they have experienced a range of financial difficulties since the start of the year.”

The latest interest rate rise comes at a time when house prices and rents are at record highs. Hiking interest rates is set to hit first-time buyers who have just made it onto the property ladder.

Analysis from Rightmove found that the average first-time buyer living in a home with two bedrooms or fewer will be spending £1,030 per month on mortgage payments following the increase, up from £976 per month at the previous 1.25 per cent interest rate.

That takes monthly payments up to 40 per cent of average salaries, according to the property portal, following the latest interest rate rise. That’s at a level not seen since 2012.

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Tim Bannister, Rightmove’s housing data expert, said: “With each jump in interest rates, home-owners are contributing approximately one per cent extra of their gross salary on average towards a mortgage.”

However, he Bank of England’s stance could see property prices start to fall in future, according to Iain McKenzie, chief executive of The Guild of Property Professionals, 

McKenzie said: “Another consecutive interest rate rise could make potential buyers more hesitant about taking on a mortgage. If it does, we will likely see property prices cool off in order to entice more people to buy.”

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