Rising UK interest rates

  • 11 months ago
  • News
  • 1

What does rising interest rates mean for property investors?

On Thursday 5 May, the Bank of England increased the base UK interest rates from 0.75% to 1.00%. This 0.25% rise is the fourth consecutive increase since December 2021.

What has been happening to interest rates?

In December 2021, the base interest rate was increased from 0.10% to 0.25%. Then, in February 2022, this was increased to 0.50% and 0.75% in March, which was a return to pre-pandemic levels.

These increases have happened as inflation has surged to 7%, the highest level for 30 years. The cost-of-living crisis ensues as prices remain high for energy, food, and other goods. Additionally, the war in Ukraine continues, which is also impacting inflation. 

Later in the year, inflation is expected to increase to about 10.25% due to these factors, which will likely push up interest rates further in the coming months. 

What does this mean for property investors?

Naturally, some property investors are concerned about what rising interest rates means for them. It’s important to be aware of how these changes impact you and your property investments.

While rising UK interest rates mean borrowing is more expensive, interest rates are still low from a historical context. The base interest rate has hit the highest level since 2009, but it’s still low when looking prior to that when the Bank of England rate was over 5% and had even previously hit 10%.

Increasing interest rates may lead to a slight slowdown in the UK property market, but the sector had been running at record levels throughout the past year. Higher interest rates can seem worrying to property investors, but during times of high inflation, investing in property can prove to be a better form of investment, particularly when investing for the long term.

Rising inflation can impact immediate profits, but professional property investors rarely take a short-term view. Additionally, the UK property market has remained remarkably resilient throughout recent economic uncertainty and is considered a consistent safe haven for many international investors.

As there’s an ongoing housing shortage across the UK and as more people continue to be priced out of buying with the current squeeze on people’s finances, there is expected to be growing demand for rental properties. 

Tenants are even renting for longer, which is further creating a supply and demand imbalance and boosting the prospects for buy-to-let property investment across the long term.

What is expected for the future?

The Bank of England’s Monetary Policy Committee meets about every six weeks to discuss what the base interest rate should be set at. The next interest rate setting meeting is on 16 June, so many property investors will likely be waiting to see what happens then.

Further rises to the base interest rate are expected in the coming months and across the next year, but this depends on what happens in the economy and what the Bank of England thinks will happen to inflation. 

The central bank is projecting the base interest rate will rise to about 2.5% by the middle of 2023. In 2024, inflation is being forecast to fall near the Bank of England’s target of 2%, which could then slow the growth in interest rates.

Before buying any property investment, it’s recommended to seek out financial advice. If you have any questions about buying UK property in the current climate, please get in touch.

Please note that this information is for general purposes and is not intended to be financial advice.  You should always obtain specific advice which is relevant to your circumstances. 

Professional legal and financial advice should be sought when purchasing a property. Make sure you consult a solicitor about the potential changes and impact on your investment.

Join The Discussion

Compare listings