Despite claiming that inflation has peaked, the Bank of England has increased the interest rates for the ninth time this year.

As mortgage payers, landlords are set to face some of the most significant consequences of this. And unfortunately, preparing yourself against these consequences isn’t as simple as taking out a landlord insurance policy as you will need to prioritise your finances.

In this short article, we’ll explore some important ways that rising interest rates affect you as a landlord.

Greater borrowing costs

If you’re looking to take out a mortgage on a new rental property, rising interest rates will increase the total cost of borrowing.

If you take out a fixed-rate mortgage during a period when interest rates are high, you’ll need to continue paying this higher rate over the term of your mortgage. A variable-rate mortgage could allow you to benefit from future falls in interest rates but will also expose you to greater rate variation over time.

The bottom line: when interest rates are rising, consider the total costs carefully before expanding your rental portfolio.

Increased tenancy turnover

Higher interest rates could also make it more difficult for tenants to afford their rent, which could lead to increased tenant turnover. It might even be necessary for some to evict their tenants if they aren’t able to keep up with their payments.

Tenant turnover is problematic for you as a landlord, as it may not only require you to invest more time and effort to find new tenants, but it might even lead to periods of vacancy when your property is not generating any income.

Reduced rental demand

Higher interest rates can lead to slower economic growth, which could result in reduced demand for rental properties. In this environment, many people lose their jobs and are more conservative with their spending due to a higher cost of living. This could lead to fewer people wanting to take on new tenancy contracts, preferring to wait until the economic climate is more favourable.

Decreased property demand

Rising interest rates can also lead to a decrease in property values, as investors may be less willing to purchase property when the cost of borrowing is higher.

Moreover, rising interest rates are intrinsically linked to inflation – meaning that average house prices climb in tandem.

These factors can make it difficult to sell your property. Even if you do manage to find prospective buyers for your property, you might find that they want to buy it at a lower price than it’s worth to try to even out the higher cost of borrowing and cope with inflated prices.

Although rising inflation rates have an impact on you as a landlord, they’re nothing to be afraid of. They’re a natural part of the economic lifecycle. Having a working knowledge of the possible effects will give you peace of mind and enable you to effectively ride out the situation. And hopefully, you feel better off in that regard after reading this short article.