The UK rental market could be facing a crisis, the Bank of England warned, as landlords facing surging mortgage rates may have to choose whether to force renters to pay more or to sell and drive house prices down.
The rental sector is set to be most affected by the ongoing mortgage mayhem, as fast-rising interest rates “could cause landlords to sell, putting downward pressure on house prices”, the Bank said.
It added: “Alternatively, they may seek to continue to pass on higher costs to renters.”
The mortgage pressure on landlords could be just around the corner, as data from Moneyfacts today showed the average interest rate on a two-year buy-to-let deal soared to nearly 7%. The average rate of 6.96% today is a drastic jump from just yesterday, when rates averaged 6.83%.
Mortgage prices for homeowners continued to climb too, after a two-year fixed residential deal hit its highest rate in 15 years yesterday. Two-year rates rose to 6.70%, while five-year rates climbed to 6.20% and the average tracker deal crossed the 6% threshold.
With the number of products on the market still close to a five-month low, even higher prices could be on the way.
It comes as the Bank warned that nearly four million homeowners will see hikes in mortgage payments by 2026, with close to a million set to pay an extra £500 a month.
The Bank of England’s half-yearly Financial Stability Report, which looked at where rising interest rates could cause stress to households, businesses and markets, also found that “there remain vulnerabilities” in the part of the system where it had to launch a £65 billion intervention in September to make sure pension funds could raise cash.
The turmoil sparked by the mini-Budget included a sudden drop in the prices of the government bonds that companies sell to meet their obligations, prompting the BOE to step in as a buyer.
Those weaknesses remain, the BOE said, and they “could become more apparent as interest rates continue to increase”. The Bank said it was “working with other regulatory authorities to achieve this, as “Many firms involved in market-based finance are not regulated by the Bank of England.
The report came out after the BOE’s own Monetary Policy Committee has hiked interest rates 13 times in a row and is expected to do so again next month.
Designed to spot potential problems in the UK’s financial system, the report also found that the country’s 8 biggest banks would be “resilient” even if the economy worsened significantly
But with the fight against inflation through higher interest rates tightening its grip on the UK, it stayed cautious.
It warned that “further unanticipated increases in market interest rates and interest rate volatility” could “lead to sharp reductions in risky asset prices, further tightening financial conditions for UK households and business”.
