Eli5 – If the BoE interest rate keeps rising, ultimately pushing up the monthly rent price, at what figure (%) is best for tenants and home owners?.
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It won’t push up the rent price for everyone. Not every landlord has a mortgage on their properties. It will however cause misery for millions if the rates get above 7-8%. Not to say it isn’t causing misery right now, but things could get bleak.
People can only afford to pay X% of their wage packet towards housing. If it gets very high, the affordability of mortgages will suddenly become, well…unaffordable. People looking to buy will have to stop and wait until rates come back down again. This will cause a slow down in the housing market and prices will fall. Falling house prices may force the BoE to lower rates again but this is not ideal as it *may* cause inflation to sky rocket again.
The UK has been used to cheap debt for decades since the 2008 crash. The public has borrowed and borrowed and so has the Crown (Parliament/Government) in order to prop up the housing market. Households have had nearly a generation to adjust to cheaper mortgages when in fact the last 15 years has been an anomaly in the history of interest rate averages.
Add into this that earnings in the UK have largely stagnated and Brexit has taken a massive economic toll on the countries fiscal prospects and you have a perfect storm of low affordability and all of the circumstances to put pressure on household incomes.
The answer to your question is probably between 2-3%. People grumbled when the rates went up but the historically low rates from the fallout of 2008 could not last forever. What the UK needs right now is some positive growth and a rise in exports of high value materials and goods to help it combat and reduce the impact of Brexit and help the £ grow. IMHO.
Landlords don’t raise prices because the BoE raises rates. They raise prices because of inflation (either inflation in the housing market, or in the cost of goods and services).
The BoE raises rates to try to slow down inflation. The more expensive it is to borrow money, the slower businesses expand and the less salaries go up.
The BoE adjusts its rate to try to keep inflation at around 2%. This is probably the “best” rate for tennants and homeowners according to conventional economic wisdom.
But the interest rate that will achieve this inflation is dependent on the current state of the economy. It’s not a fixed number. When the economy slows, low rates help increase inflation. When the economy overheats, high rates help reduce inflation.
So it’s not exactly possible to answer your question in the way you asked. Hope this gets at what you were trying to understand, though.
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