Is another interest rate rise really bad for landlords?

Is another interest rate rise really bad for landlords?

9:32 AM, 4th August 2023, About 11 months ago 7

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With interest rates on the rise, landlords may face some challenges, particularly those without fixed mortgages. However, amidst the potential uncertainties, there are also opportunities that can be harnessed within the Private Rented Sector (PRS).

One immediate benefit is the increased demand for rental properties. As interest rates fluctuate, the housing market remains unpredictable and supply continues to fall, more people are opting to rent rather than buy. For landlords with vacant properties, this presents a golden opportunity, when looking for tenants, to attract and cherry-pick the best-suited candidates for their properties. They can also set the rent at current market rates, potentially boosting profits.

For landlords with existing tenants, the interest rate rise can be seen as an opportunity to increase rents. In the past, many landlords have been hesitant to raise rents. This stems often from a misplaced loyalty and fear of potentially rocking the boat with existing tenants. Unfortunately, the consequences of leaving rents unchanged for long periods really come home to roost at times such as these. However, with the current saturation in the rental market and soaring property prices, tenants will find it challenging to find comparable properties at similar rates. This situation also provides landlords with a lower risk of tenant turnover.

While there is a moral obligation to treat tenants fairly, it’s crucial to remember that renting property is also a business. Landlords need to balance ethical considerations with financial realities. A well-managed rental property can provide a steady income stream and contribute to long-term financial stability.

In conclusion, whilst an interest rate rise can bring a lot of negative consequences for landlords in the PRS, it also offers opportunities to attract tenants and potentially increase rental income. As the rental market continues to evolve, landlords must carefully assess the situation, navigate through challenges, and strike a balance between being fair to tenants and ensuring their business remains viable.

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Mark Alexander - Founder of Property118

10:26 AM, 4th August 2023, About 11 months ago

Hi Josie

Great article.

I agree with all that you have said and would add that if they cannot make a profit after carrying out all of your suggestions they are probably over-geared. Either way, they should also be considering the feasibility of incorporation and other ownership structures if they are affected by the Section 24 restrictions on finance cost relief and/or considering restructuring by selling one or more properties with a view to de-leveraging.

I look forward to reading further insights in your future articles.




10:39 AM, 4th August 2023, About 11 months ago

Rising interest rates are not necessarily bad for landlords and neither is high inflation. It is tenants that high interest rates are bad for and landlords being unable to offset finance costs against rents actually makes things worse for tenants.

Mick Roberts

11:26 AM, 4th August 2023, About 11 months ago

Great words.
And yes, we should be putting rents up or we end up in the crap when need a new 5k roof or a new 30k fitted Heat pump that Boris Sunak said we've got to fit.
Alas, many of us still don't increase rents.

People often ask me
Are we in the crap now?

I say No, whatever happens, generally it means we in the good. At moment, tenants can't afford to buy, people will be selling & wanting to rent, we have more demand. Every bad economy turn I've seen since 2008 has mean't much more demand for our houses.

Mick Roberts

Seething Landlord

11:52 AM, 4th August 2023, About 11 months ago

In our area rental yields are approximately 5% of market value so with the requirement for rent to be at least 125% of mortgage payments stress tested at 7% the maximum loan to value is around 60%. At 9% it reduces to less than 50%.

Market rents are ultimately limited by affordability or government intervention so the idea that rent can be increased indefinitely to maintain landlords' income is somewhat optimistic, but those who have low leverage or own outright will undoubtedly benefit from the upward pressure on rents caused by increases in interest rates.


12:59 PM, 4th August 2023, About 11 months ago

Reply to the comment left by Seething Landlord at 04/08/2023 - 11:52
...upward pressure on rents caused by both increasing interest rates plus lack of supply exacerbated by the changes AND the fact that landlords cannot deduct these increased costs from income. It's a problem manufactured by government.


8:05 AM, 5th August 2023, About 11 months ago

We don't actually need any increase in demand for rental properties as the demand is saturated at the moment. As for raising rents, yes, but you can only raise them once a year so that wont help most landlords whose interest rate has increased. It needs S24 to be repealed and that just won't happen. If you have an interest only mortgage, now may be the time to pack it in and sell up.

Fergus Wilson

8:10 AM, 9th September 2023, About 10 months ago

Any Base Rate increase is bad for both landlords and tenants.

Any Base Rate decrease is good for both landlords and tenants.

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