How Could Rising Interest Rates Affect The Rental Market?

Rising interest rates are likely to result in higher mortgage payments for landlords on variable buy-to-let mortgages. While those on fixed term deals may see no change in the immediate future, if rates continue on an upward trend, they could be left with higher costs when they come to remortgage.

The landlord news website Property Investor showed that 39% of buy-to-let landlords in the UK are planning to raise rent payments to help pay the difference.

Others may decide to sell, fearing the predicted drop in house prices and potential difficulties attracting tenants given the ongoing cost-of-living crisis. A mass sell-off would compound any price drops in the short term, squeezing the rental market, reducing competition and validating rises.

But falling property prices fuelled by a sudden influx of sellers may ultimately attract new landlords. It could also make life easier for first-time buyers.

Falling prices may mean those who have been saving for a deposit in recent years see their anticipated loan to value fall, enabling them to secure a lower rate. For some, rising interest rates could be a blessing in disguise.

Others facing increased rental costs may decide now is the time to buy, with falling prices offsetting at least some of the rate hikes. And with the 95% mortgage market back in full swing, and several government schemes available, the thought of spending money paying down your own mortgage might appeal.

First-time buyers with families willing to support their dreams of homeownership might join the growing band of (predominantly) youngsters seeking guarantor mortgages or offset mortgages with help from parents or grandparents.

But the continuing economic downturn could hit some renters hard. Rising payments will tighten budgets. Those unable to save for a deposit or look to buy property will need to examine their income and expenses.

Although it’s worth remembering that rental prices must reflect tenant affordability to some degree. While landlords may want to increase prices, local markets ultimately determine whether that’s practical.

Where rent increases are impacting household income, support is available. Universal Credit is designed to support families in times of financial need. And with lots of working families claiming it, the stigma attached to claiming benefits has, thankfully, been consigned to the past.

Households feeling the pinch of price rises are advised to seek help from the local Citizens Advice Bureau or debt charities such as National Debt Line or StepChange.

Defaulting on unsecured debt brings additional charges and stress, as well as making it more difficult to find another rental property in the months and years to come.

The huge demand for rental properties in recent years is widely linked to property prices being too high. But for most would-be homeowners, it’s not yet clear whether the anticipated fall in house prices will be the solution they’ve been seeking.

Those who have been looking to buy or have been encouraged to think now is the time to act, should speak to a mortgage advisor to find out what mortgage options are available and ensure, whatever decision they make, it’s based on knowledge and experience.