According to Tony Capon, head of intermediary sales at Salt, the increase in BBR to 5.25 per cent, coupled with the existing pressures on rental yields, means rents will have to be forced up to allow landlords to service loans.
Capon commented: “Yields are not strong at the moment and with interest rate rises coming through, rents will have to go up, maybe between five and ten per cent. This is the logical path and the only way landlords will be able to make deals work.”
The buy-to-let (BTL) sector had been bullish about the year ahead prior to the rate rise, with high tenant demand and landlord confidence some of the factors influencing this.
Gus Park, head of BTL at Mortgage Express, pointed out these features were still there to help maintain a positive outlook but admitted rents were likely to rise.
“As a general rule, a rise in interest rates is often followed by a rise in rents but many tenants are stuck in situ because they are under contract. Fundamentally, rents will rise over time but with plenty of demand and currently low void periods, landlords are having no problems letting property out and therefore the market could absorb a rise in rents.”
However, Simon Chalk, mortgage planner at Mortgage Portfolio Services, warned while there was plenty of demand in the South-East, the situation was different elsewhere.
“Landlords will struggle to raise rents in some northern cities as there is not a property shortage like in the South-East. Landlords will be hard-pressed to increase rents and you could see the brakes being put on the BTL market.”
