BoE rate hike: Shojin chief warns of squeeze on property investors
Shojin chief Jatin Ondhia has warned that higher borrowing costs will lead to buy-to-let investors exiting the market, in the wake of the Bank of England’s decision to hike the base rate to five per cent.
Ondhia, who runs the peer-to-peer property lending platform, said that the central bank’s ‘do what it takes’ approach “will ring alarm bells for many”.
“Higher borrowing costs will continue to squeeze homeowners and property investors, which in turn will lead to more buy-to-let investors exiting the market and increase rental costs due to a dwindling supply of property,” he said.
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“The impact of this will be felt far and wide. Renters in high-demand areas like London are already spending 40 per cent to 50 per cent of their salary on rent. We can only hope that inflation starts to settle soon, but I expect more pain before relief comes.”
However, Ondhia noted that property values remain underpinned by a shortage of supply, and said that “cash buyers are still out there”, while “mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions”.
“The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more ‘normal’ rates, which all borrowers have to get used to,” Ondhia added.
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The Bank of England today increased interest rates from 4.5 per cent to five per cent, in a bid to tame sky-high inflation. Data earlier this week showed that core inflation – stripping out volatile factors like food and energy – hit a 31-year high of 7.1 per cent in May, despite more than 18 months of consecutive rate hikes.
“High inflation is a destabilising force eating into pay cheques and slowing growth,” said Chancellor Jeremy Hunt.
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“Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.
“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later.”