(1888PressRelease)
May 16, 2007 - Added to the increase in house prices is the recent decision by the Bank of England's monetary policy committee to raise the interest by a quarter of a percentage point. This decision was made in attempt to get a grip on rising inflation and has, at a stroke, made the cost of obtaining a mortgage and buying a house much more expensive.
Mortgage lenders have reported a last minute rush on fixed rate products in the wake of the decision - but even these are fixed at 5.25 per cent, still a high rate. In comparison, this time last year the base rate was 4.5 per cent.
The two groups of people hardest hit by the rise in house prices and interest rates are young professionals and first-time buyers. These represent a significant share of the buy-to-let landlord's core market.
Young professionals can rarely afford to buy their own property, while first-time buyers often rent for a period before taking the plunge into the housing market.
According to Trevor Williams, chief economist for Lloyds TSB corporate market, last week's interest rate rise "will reduce the incomes that people have to spend on going out and consumer durables".
A quarter per cent rise "effectively adds something like five per cent to interest payments", he added. With affordability being taken a step further away, many of this latter group will be forced to continue renting, or will wish to continue renting anyway as they wait to see if the market will stabilise or even recede.
An additional benefit from the investor's point of view is that increased house prices mean increased asset value. This, coupled with the lack of supply in a hungry housing market, means that the portfolio owner that chooses to sell - for whatever reason - is almost guaranteed of a handsome profit.
