Rising house prices could mean a hike in interest rates

The rise in UK house prices is good for anyone with investment property. Many BTL owners were savaged when property prices fell forcing them into negative equity. The only thing that has kept many landlords “on the log” was the drop in interest rates to unbelievably low levels. levels we had never seen before in the UK.

Now we have good news and bad news. The good news is property prices are rising across most of the country. London is leading the way with 18 per cent annual gains. Rents are also very strong right now. The bad news is that if the economy continues to recover this could well mean a rise in interest rates. As I wrote last month, my banking connections say they expect to see a rise in base rates of between 2 and 3 per cent over the next three years. Not wanting to point out the blindingly obvious but if you’re currently paying 3 per cent on your mortgage and rates go up a further 3 per cent, your mortgage has just doubled. Not many people can handle that kind of increase.

We all like to see our equity in our property rise but now is the time to make sure you are left high and dry when base rates start to rise. Work out what each one per cent rise will mean for your household cash flow and consider looking at a fixed term rate to limit the damage. It’s no good waiting until the Bank of England announces a rate rise – by then the best deals will have gone.

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