In recent times, interest rates have fluctuated monumentally, the property market has experienced significant fluctuations, and one of the critical factors influencing the market dynamics is the interest rate set by central banks. As we delve into 2023, the question of whether investing in properties is a wise decision looms large due to potential interest rate hikes. In this blog, we will explore the effects of interest rate increases on landlords and discuss the considerations when deciding whether to invest in property in 2023.
The Impact of Interest Rate Increases on Landlords
Interest rates play a crucial role in the property market, affecting both landlords and tenants alike. When interest rates rise, obtaining financing for properties becomes costlier. For landlords looking to expand their property portfolio or finance renovations, higher interest rates can lead to increased borrowing costs, potentially affecting their cash flow. For this reason, landlords may choose not to invest in further properties, which will create a shortfall in property available for tenants. Some landlords may benefit from increased interest rates, as they could potentially receive higher returns on their savings and investments
Moreover, higher interest rates may deter potential homebuyers from entering the market, leading to increased demand for rental properties. This scenario can create a situation where landlords face higher interest from tenants and can increase rental prices due to high demand, ultimately impacting their rental income and overall return on investment.
This is a double-edged sword because, yes, landlords can charge premium rents, but due to the cost-of-living increases. Tenants have less disposable income, and this can increase the chances of rental arrears.
Nevertheless, landlords should be prepared for potential challenges that an interest rate hike may bring.
With the cost of construction, labour, and materials skyrocketing. Many landlords are having to look at their budgets more carefully. What was The emergency contingency budget needs to be bolstered up with the escalating costs for the same work.
At My Landlord’s Cares, we advocate investing in properties sensibly. This means when you are doing your risk testing, consider factors such as interest rate hikes and emergency breakdowns. With a low-risk approach, most landlords can overcome the unpredictable nature of the current markets.
Are you interested in properties but do not know where to start? Contact us, and we will break things down for you step by step so you can make the right decisions.
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