UK rents rising with interest rates

| May 21, 2007 | 0 Comments
UK rents rising with interest rates

Rents are going up along with interest rates in the UK. According to mortgage lender Paragon (LSE: PAG), the hikes in rents are up more than the rate of CPI inflation after four interest rate increases since last summer. A spokesman for Paragon said that with demand for rental properties strong, landlords can increase rents for existing tenants when the lease is renewed and can charge even more when a new tenant moves in. In addition, more landlords are buying more rental properties.

Average rents are up by 6.5 percent in the past quarter, compared to a gain of less than 1 percent in CPI inflation. That has taken the average rent a tenant pays from £9,942 in January to £10,591 in April. When asked, 30 percent of landlords said that they are raising rents in reaction to the higher interest rates, and 12 percent say they are or plan to invest in more rental properties. However, 43 percent said that they haven’t taken any steps based on rate hikes.

Landlords who are buying more properties do not seem to be bothered by the higher cost of borrowing. Research has shown that most finance new properties with a combination of equity and debt, generally in the range of 35 percent cash and 65 percent in loans. Most of them - 70 percent - choose fixed rate mortgages so that they aren’t affected by short-term changes in interest rates.

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