Three ways a hike in interest rates will affect landowners
|Author: Travis Benn||Read time: 3 mins|
|Client type: Independent landowners||Technology: Onshore wind|
The recent interest rate increase has caused a stir among the business community. However, despite being only the second rise in nine years, some feel the move by the Bank of England was ill-judged against the backdrop of an uncertain Brexit. So, what’s the impact on landowners’ land rent payments?
Landowners’ rent payments are generally made up of two fees. The first is minimum rent, which is a flat rate linked to inflation. And the second is turnover rent, which is based on energy performance and is affected by interest rates.
It’s expected that the interest rate rise from 0.5% to 0.75% will have a positive effect on rent payments, and landowners can anticipate an increase in their earnings. Here are three key reasons why.
There is still an expectation that inflation, as we explained here, will rise due to higher wages in the future, leading to a rise in minimum rents.
Many landowners receive a fee based on turnover rent linked to a percentage of their electricity producer’s sale price. Given that electricity prices are likely to increase based on higher interest rates, landowners should also see an increase in their turnover based rent payments because of this.
Increased interest rates will result in higher interest payments if a future rent audit reveals that any rents are underpaid.
There is talk of another interest rate rise in the next 12 months, which could be a green shoot of brighter days ahead. However, experts warn that we are unlikely to see rates reach the levels experienced pre-recession, so even if your payments do increase over time, the hike will be gradual.
Of course, many factors that could impact your specific contract, and we are still yet to see how Brexit will play out. But at least for now, your payments won’t be adversely affected by the recent interest rate rise.