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How High Will UK Interest Rates Go?

How high will UK interest rates go?

The tenth consecutive interest rate rise has dealt yet another hammer blow to already struggling landlords who are seeing their profits squeezed from all directions in the face of ever-rising costs. With the base rate now at its highest level for 14 years, is there any light at the end of the tunnel? How high will UK interest rates go, and are there still ways to make buy-to-let viable in 2023?

UK Interest Rates Reach 14 Year High

Interest rates have continued to soar following the historic lows seen as recently as December 2021, when the base rate sat at just 0.1%.

On the 15th of that month, the Bank of England announced a rise of 0.15 percentage points to 0.25% – the first of ten consecutive hikes that have followed as the UK battles with the impact of soaring inflation.

After the latest Monetary Policy Committee meeting, the BOE announced on 2 February that rates would go up again from 3.5% to 4%, taking the benchmark rate to its highest level in 14 years.

It is hoped that higher interest rates will reduce people’s spending and encourage saving, which in turn reduces prices and lowers the cost of living. However, these rises are bad news for homeowners and investors with mortgages – immediately impacting anyone with a variable or tracker-rate mortgage.

Buy-to-Let Mortgage Repayments Soar

With soaring mortgage costs, higher taxation and strict incoming legislation set to shake up the private rented sector, it’s fair to say this latest base rate rise is yet another blow for buy-to-let landlords across the country.

Since most buy-to-let mortgages are taken out on an interest-only basis, the impact of base rate rises can be especially tough – adding hundreds to monthly repayments. According to research by lender Octane Capital, average monthly repayments on interest-only deals increased by a whopping 242.8 per cent in the 12 months to November 2022.

Of course, this latest rise brings even higher costs. For those on a tracker, standard variable rate (SVR) or variable mortgage, monthly repayments will almost immediately increase following any rate rise – significantly increasing costs and further squeezing profits from buy-to-let investments.

For those on fixed deals, the impact will only be felt once the fixed period comes to an end – but those who are leveraged high could be in for a big shock.

As well as paying a lot more than if you had taken out the same mortgage just a few months or years ago, some may even find it difficult to find a new deal. This is because the number of buy-to-let mortgage products on the market has fallen sharply, while lenders are also becoming more stringent when assessing how much they are willing to lend when looking at new applications.

How High Will UK Interest Rates Go?

Following the tenth consecutive rise, you might be wondering: how high will UK interest rates go?

When the Bank’s Monetary Policy Committee next meets in March, it will be under pressure to hike rates further since inflation currently sits at around 10.5% – way above the 2% target level. At the same time, it will also be mindful of not dampening economic growth, so it will certainly be interesting to see what happens next.

While ultimately it remains to be seen, analysts suggest that rates could peak at 4.5% in the summer as the Bank juggles curbing inflation with its impact on the economy, which is expected to enter a recession.

What Should Landlords Do?

For existing landlords who are struggling, there’s still time to take stock of your property portfolio and consider different options. 

As ever, there are always many opportunities out there – it’s just that the goalposts have changed somewhat. For example, there are buy-to-let alternatives that could allow you to achieve your investment goals without actually being a property owner, creating income without dealing with soaring mortgage repayments, rising maintenance costs and increasingly stringent legislation.

But while there’s no doubt traditional buy-to-let is becoming increasingly challenging, it’s definitely not all doom and gloom.

Interested in finding out about the different property investment options that may be available to you? Give our team a call on +44 (0)1708 922 222 – or fill in our contact form to request a callback.

Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.