The Impact of an Interest Rate Rise on Property Investment

Speculation continues to abound that, maybe as early as November, an interest rate rise from the Bank of England could take place. Property investors we talk to are naturally very interested in how this will have an impact on property investment in the UK.

A recent speech to economists in London by Gertjan Vlieghe, a member of the rate-setting committee at the Bank of England, stated that a rise in rates could be ‘as early as in the coming months’. What impact will this have on property ownership and mortgage rates, especially for those invested in multiple properties? Read on to hear our views.

The Predicament for Current Property Owners – For those already owning homes, the rise in interest rates will have a dramatic effect. For many it will mean that monthly bills will increase, especially for those who are working with variable rate and base rate tracker mortgages. For those people with fixed-rate mortgage deals, there will be no immediate increase, but that would only last for as long as the agreed fixed-term period so a sense of unease may well develop in the property ownership market.

For everyone, a rise in interest rates represents a shift, as the majority of property owners will not have seen an increase in the monthly outgoings linked to their mortgages for around ten years!

Increase in Mortgage Repayments – There is no catch-all answer as to how high household bills will increase. Each mortgage is different to the next, with variables including the specific terms of the mortgage, the length of the mortgage repayment terms and the rate attached to each specific mortgage. What we can say however, is that the average standard variable mortgage rate stands at 4.6%, so any increase in interest rates could have a significant impact on the amount of money being paid out on a mortgage each year. UK homeowners could be facing hundreds of pounds extra in mortgage repayments over the course of the mortgage term, should they have a variable rate mortgage in place on the property. This news is enough to unsettle many homeowners and encourage them to tighten their belts.

Choices for a Property Owner – If interest rates are to go up, those with variable mortgage rates have to be prepared for the consequences. Homeowners will need to do their best to have enough cash spare as a buffer in order to cope with the potential increase in repayments as a result of a rise in interest rates. Unfortunately, many UK homeowners are simply not in this position so there is likely to be a significant pinch to disposable income if and when interest rates rise and potentially short term stagnation in the housing market.

Perfect Time to Invest in Property – Every cloud has a silver lining however, and if you are in the property investment market for the medium to long term, this could be a golden opportunity to take advantage of a shift in the market due to a rise in interest rates. For serious property investors, adverse market conditions can reveal significant opportunities so at Residential Estates, we believe now is the perfect time to strike. Why do we believe this?

• Less experienced investors may have their eye taken off the ball by an interest rate rise therefore attractive investments will be available to be snapped up by more insightful investors.

• Fixed-rate mortgages are at the best value for money they have ever been in many cases. Acquiring a fixed-rate mortgage at this point in time provides you with a chance to continue building your property portfolio without having to worry about the potential increase in interest rates having an impact on your mortgage repayments over the course of a set period of time.

• Re-mortgaging is at its highest rate since 2009, and much of this is down to fixed-rate mortgages being such a desirable product at this moment in time. Uncertain financial times might be scary for many, but it is often a period that can be fruitful for more experienced property investors who understand the feeling behind making a move into the property market at exactly the right time.

• Doing the opposite to the direction of the market can be a fruitful way to invest. While inexperienced investors may be scared off by an increase to interest rates, rich pickings will be lying on the table for those who know how to navigate political and economic changes.

• Interest rates are likely to still be exceptionally low compared to rates 20+ years ago therefore the return on investment from property investment remains a proven and solid base for long term financial security.

At Residential Estates we have experts on our team who can help you make the right choices, whether the interest rates rise or not. Being aware of the economic climate and the property marketplace is what we do, so we know we can provide insightful advice to our clients, whatever happens to the wider economic issues.

For more information about the property investment advice and guidance we have to offer at Residential Estates, contact our office on 01244 343 355 or email We also have a live chat function on this page and a simple-to-use contact form, where our friendly customer service team can return your call at your convenience.

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