Property and Homes

Rising interest rates – what buy-to-let landlords need to know

The rise in interest rates has a lot of landlords asking the question, increase rent or sell.

Why are interest rates increasing?

The government’s disastrous mini-budget led to instability in the financial markets with interest rates and fluctuations in the value of the pound. In response, the Bank of England said it “will not hesitate” to raise the Bank Rate to steady the pound and bring inflation under control.

interest rates

At the Bank of England’s Monetary Policy Committee in September 2022, the MPC voted to increase Bank Rate to 2.25%. The National Residential Landlords Association (NRLA) said the recent rise in interest rates and further increases expected down the line “are likely to leave landlords with little choice but to pass on at least some of the costs”.

What does the rise in interest rates mean for landlords?

For landlords with variable interest rate mortgages, the truth is that you will be facing face higher monthly repayments and landlords with fixed interest rate mortgages will probably be able to breathe a bit easier, but not for long because they may also find themselves faced with higher interest rates when their current deal runs out.

What should landlords do about the higher interest rates?

Realistically, landlords have 3 options, all of which have their advantages and disadvantages.

1. Don’t do anything – if you already have a high return from your property and are not affected too much by the interest rate rise then you can choose to do nothing however landlords need to be aware of the changing circumstances of the market and their tenants’ situations.

interest rates

2. Increase rents to meet the cost of the effect of the interest rate increase – although this might allow landlords to meet the increase in their mortgage costs, you have to be aware of the current financial strain that your tenants may be under as a result of soaring inflation, an increase in the cost of living and energy costs.

3. Sell the property – selling may provide short-term relief from the effect of the interest rate increase however a lack of investment because people may not be able to get the mortgage to buy the property could lead to downward pressure on house prices. This means landlords who’re looking to sell in the future could lose out on capital gains

Need to fix a repair or breakdown?
price my job
Landlord Blog

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Please read our full disclaimer.