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What Goes Down Must Go Back Up

Inflation is rising but for how much longer? Peter Hemple reports

If you find the April 2020 edition of PIN, there is an article looking at what impact the pandemic will have on commercial property in the UK. I wrote the article just a week or two into the first UK lockdown while global stock markets and economies were crashing, with no bottom in sight.

Here is an excerpt from that article: ‘Any faster than expected turnaround in events regarding Covid-19…will very likely unleash a strong bout of inflation. Car plants are closing, clothing factories also, airlines are going bust. All the while, millions of employees will be earning close to full salaries while working at home in isolation, or being paid almost a full salary not to work at all.’

Regarding when the lockdown in the UK eventually ended I wrote: ‘We will be treating ourselves to better cars and clothes and nicer homes with better furniture and, after such close confinement with our families for such a long period, demand to build extensions/extra rooms will also soar…in short, if you wake up to global headlines this summer of “over-80s to be vaccinated within weeks”, it is probably worth a call to your mortgage lender to see what the best fixed-rate deals are.’

However, while Moneyfacts did indeed report in November 2020, just weeks before the vaccination rollout began, that average rates on two and five year fixed mortgage deals had risen for four consecutive months, resulting in the average two-year rate for borrowers with a 15% deposit exceeding 3%, in January this year lenders starting focusing on borrowers with large deposits, just as they did after the financial crisis.

This trend has continued and at the end of May Moneyfacts reported that interest rates for buy-to-let mortgages are beginning to decrease. Its figures revealed that since March 2021 the largest reductions have been seen at 65% LTV. While it said this was great news for landlords with the required level of deposit, or equity if remortgaging, for those landlords with lower levels of deposit or equity the news is not good as the average two-year fixed rate at 80% LTV has been rising and is now at 4.20%.

Overall though, interest rates are still relatively low despite a successful vaccine rollout and a strong economic rebound. There are two main reasons for this. Firstly, after cutting the base rate to a new record low of 0.1% in March 2020, the Bank of England (BoE) has so far decided against raising rates. Secondly, the Mortgage Guarantee Scheme was launched in April 2021, increasing lender confidence, not only to lend to first-time buyers but also to first-time landlords, which has resulted in more competitive mortgage deals being offered.

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