Bank of England rate rise may not influence bridging lenders
On Thursday, August 2, the nine members of the Bank of England’s Monetary Policy Committee voted unanimously to increase the bank interest rate from 0.5% to 0.75%. Borrowers with non-fixed mortgages should expect to pay more interest, but it is unlikely that many short-term bridging lenders will raise their rates.
Many alternative lenders raise funds to lend to borrowers who are not dependent on the Bank of England base rate. There is fierce competition between bridging lenders, which could mean that most lenders will not raise rates in case borrowers find cheaper rates elsewhere.
Quoted by BridgingAndCommercial.co.uk this week, Benson Hersch, the CEO of the Association of Short Term Lenders, said:
“Unless there is an expectation of further increases in the medium term, I don’t expect rate rises to affect short-term lenders.”
Many short-term loans are used while waiting for long-term finance such as a mortgage to be available. Investors who are using a combination of bridging lending and a mortgage to finance property deals will find the total cost of the property becomes higher, but the extra costs will more than likely be due to paying more interest on the long-term loan funds.
Rising interest rates can affect the value of property, but supply and demand levels in an area influence property prices more. Higher interest rates increase the costs for buy-to-let and commercial landlords with mortgages. They may pass on these costs in the form of higher rents.