The Impacts of Rising Interest Rates on Landlords
Introduction
Interest rates are soaring, and right now, the current bank rate sits at 2.25%. The cost of living is rising, and inflation affects most aspects of everyday life – including lettings.
The rising interest rates have worried most on the property ladder, but what do the rises mean for landlords? Though we can’t predict the future, we can look at the potential impacts and how landlords can navigate these changes.
In this blog, we’re looking at what the rising rates mean for buy-to-let landlords and what property owners can do.
Scroll down to learn more.
Effects Might Not Happen Overnight
Though there’s a lot of shock and despair in the news, the effects of higher interest rates won’t be felt overnight for all landlords – especially if landlords currently have fixed mortgages. Those who fixed last year for a five-year mortgage won’t see any effects for years to come.
Potential Higher Demand & Value
Inflation could benefit some landlords, including a higher demand from tenants delaying a purchase. In addition, higher inflation rates could cause the average property price to rise. This would leave future property values higher and more profitable.
These are potential impacts, though. In fact, many property professionals believe values may fall before they rise again. This would leave landlords and their mortgages less valuable.
Tenants May Not Pay Rent
As the higher costs of living impact all residents, there’s a higher chance that tenants might not be able to pay rent. This is especially likely as energy and household bills increase rapidly.
Landlords might feel a responsibility to assist the tough cost of living situation by freezing rents. But this isn’t always possible.
Additionally, property maintenance costs might jump alongside the cost of living. Landlords might even find themselves spending more on energy-efficient home upgrades to save costs on utility bills in the long term.
Mortgage Rate Impacts
Mortgage rates have been increasing with the standard interest rate, which could increase again before the end of 2022. These increased rates might make investors more tentative before taking the plunge into a buy-to-let investment. Alternatively, properties are a long-term strategy for current landlords, and the mortgage rate fluctuation is just par for the course.
What Can Landlords Do?
Acting quickly is the best way to prevent unwanted landlord-related costs.
If your fixed-rate mortgage is up for renewal within the next 6-12 months, make sure you complete the renewal fast. Yes, the mortgage rate is rising, and your next rate will likely be higher than your current, but if this process is delayed, you could face higher raises in the future.
It’s also advisable to check the mortgage rate you’re paying now and any penalties you might come across for repaying your fixed mortgage early. For some, paying now could save money in the future.
Budget for short and long-term property costs. The market is uncertain, and more people are re-evaluating their property plans.
The Takeaway
As we move into autumn and winter, expect more potential interest rate rises. If you’re a landlord, review your property, costs, and future needs. If needed, make changes to your mortgage arrangements, and sit tight. Rates will change in the future, but prospecting your investment is key.
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