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Landlords: Discover the pros and cons of increasing rent as interest rates soar

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Many landlords are facing a dilemma – should you increase the rent of your properties?

As interest rates have increased in the last year, many landlords have faced increased outgoings. Interest rates on buy-to-let mortgages tend to be higher, so your repayments could mean your property isn’t as profitable as it once was.

On top of that, other costs have increased too. So, if you’ve had to pay for property maintenance or other expenses related to your rental portfolio, you may have paid out much more than expected.

Yet, a report from Market Financial Solutions also suggests that landlords aren’t automatically increasing their rent. In fact, in 2022, 35% of landlords froze rent to help their tenants cope with the rising cost of living, and 56% allow tenants flexibility on rental payments.

If you’re thinking about raising your rent, there are pros and cons to weigh up.

2 reasons why you may want to increase rent in 2023

1. Rising interest rates may have affected your profitability

Rising interest rates are the key reason why many landlords have chosen to increase their rent. Over the last year, the Bank of England has gradually increased its base rate from record lows, and it is now at a 14-year high. If high levels of inflation persist throughout 2023, the Bank may continue to increase the interest rate.

If your outgoings are increasing and you don’t increase your income, your profits will suffer. It could also mean your ability to overcome financial shocks, such as needing to pay for unexpected maintenance, falls.

So, it’s not surprising that more than half of UK landlords said they are considering raising rents to cover additional expenses, according to a Finbri report.

If your repayments have increased, reviewing your mortgage and the interest rate you’re paying is useful. There may be alternative deals on the market that you could benefit from. Please contact us to talk about your mortgage needs.

2. Demand for property is on the rise

Figures suggest that competition among tenants is on the rise, which is partly driving increased rents. It could mean there’s less risk of your property being empty for an extended period if your tenant isn’t happy with a rent rise.

According to the Guardian, demand for rental properties increased by 23% in 2022. There was a particular shortage of smaller homes nationally. Take some time to look at what properties are in demand in your area first.

2 reasons you should reconsider increasing rent

1. It could harm your relationship with the tenant

A tenant that pays on time and respects your property is valuable. If you have a good relationship with the current tenant, do you want to risk it? They may decide to move out, particularly if they feel that the rise isn’t fair, or they’d struggle to meet the additional cost.

If you decide to increase the rent, how you communicate it could make all the difference. Give the tenant as much notice as possible so they can manage their own budget. If you have any work planned to improve the property, highlighting this could also help.

2. Your property could be left empty

While increasing the rent of a property could boost your income, it could also lead to the tenant looking at other options.

It could mean you face a void period, where the property is empty, but you still need to make mortgage repayments and maintain it. Even if you find a new tenant quickly, it doesn’t come without costs, as you may need to pay estate agent or solicitor fees.

Take a look at what other properties near yours are being rented for, are your expectations realistic? Weighing up the potential gains and losses is important. You should also ensure you have the finances to cover a void period if necessary.

Contact us to talk about buy-to-let mortgages

If your current buy-to-let mortgage deal is ending or you have questions about securing a mortgage for a rental property, please get in touch.

While interest rates have increased, we can work with you to find a competitive rate and a deal that suits your needs. We’re also here to offer guidance throughout the mortgage application process to make it as smooth as possible.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Buy-to-let (pure) and commercial mortgages are not regulated by the Financial Conduct Authority.

Your home maybe repossessed if you do not keep up repayments on your mortgage or other loans secured on it.