The statistics for buy to let over the past weeks and months have been almost universally positive: lending continues to increase, mortgage rates are historically low and returns are expected to improve yet further. But could all this count for nothing once interest rates go up again? A recent article in the Telegraph has argued as much. The Bank of England Governor Mark Carney has suggested rates could go up from the current 0.5% to 3% by 2017. This mortgage rate increases which this would entail could make it difficult for some landlords to meet their repayments, even with rent increases (which most agree would occur at a rate below that of mortgage rate increases). With net yields stagnating even now, such changes could spell trouble for landlords focusing on yields…or so the argument goes.
So are we on the verge of a buy to let decline? The Telegraph’s sums seem to add up but a few observations are needed to balance out the forecast. First of all, fixed rate mortgages will provide protection from the rises, especially long-term 5 year fixed terms. The article may well also underestimate the ability of lenders to keep rates competitive even with the increases: more and more lenders are getting involved in buy to let and it is hard to believe that they are doing so without factoring in inevitable future Bank Rate increases.
Also, no-one actually knows for sure when and by how much these rate increases will occur. But they will be incremental, meaning there will be opportunities to see how the market can adjust. Rent increases may outstrip predictions, even if that comes at the expense of tenant satisfaction and affordability.
There could be an adjustment period where landlords try to cash in on capital growth, leading to an increased number of properties on the market and some steadying of house prices (which would be welcomed by those who fear a bubble). But if house prices do continue to increase there will still be plenty of buy to let investors maybe taking a hit on yields but continuing to profit significantly from capital growth. Even if the prospect of rate rises puts off some potential landlords with an eye on short term gains, this could prove better for buy to let as a whole, encouraging longer term tenancies and more professional strategies.
Finally, the government is well aware that the UK requires a healthy private rented sector and will want to protect it to a certain degree. It cannot allow the sector to become wholly unprofitable when the supply of housing is as low as it is. Ultimately, it seems there are far too many unknowns for anyone to make bold claims about a buy to let decline.