As interest rates climb in the UK, landlords are finding themselves between a rock and a hard place.
Should you raise rent prices and increase your risk of vacancies on the brink of an economic downturn? Or should you maintain current prices and accept a reduction in the value of your earnings?
Luckily, there are opportunities that landlords can take advantage of to protect their earnings without having to squeeze tenants. We’ll provide a few tips below on how to adapt to high interest rates below.
Explore remortgaging options
It’s true that mortgage options are not very attractive when interest rates go up. But a surprising number of landlords are still paying much higher rates than they should be.
If you haven’t explored remortgage options lately, it’s worth having a chat with your lender. You may be able to save hundreds or even thousands of pounds a year without having to raise rent prices.
Don’t be afraid to seek new tenants
Being a landlord during a recession is not fun. But we’re not in a recession yet, which means now is a good time to reassess rent prices and/or seek new tenants.
High interest rates actually increase the demand for rental properties. This is because of the effect high interest rates have on mortgages. In this economic environment, individuals are less likely to buy property, meaning more people are entering the rental market.
What does this mean for you? It means you can raise rent prices with a bit more confidence. If tenants decide to move out, it’s better they do it now than later (if the economy continues to decline).
Also, don’t be afraid to cut your losses when it comes to negligent tenants. If a tenant hasn’t paid rent for two months, serve them a Section 8 notice and begin the process of finding replacement tenants immediately. Finding higher-quality tenants now will protect your earnings in the case of further interest rate hikes or a recession.
Reassess fees paid to agents and managers
Cuts to your budget are inevitable in this economic environment, but if you make cuts in the right places, you can improve your operations. One of the best places to make cuts is in payments to agents and managers. Technology has made it possible to access these services at lower cost without cutting back on quality.
For example, a property virtual assistant can handle many of the tasks of traditional managing agents at a fraction of the cost, including administrative tasks, arranging cleaning and maintenance, advertising properties to let and a lot more.
Looking into contract property management by large firms can also save you a significant amount of cash, especially if you manage multiple rental properties. If you have a smaller operation, you may want to consider managing your rentals yourself. It takes some effort, but it could increase your income by up to 25%.
Never cut back on maintenance
There’s one thing that landlords should never do during hard times: cut back on maintenance and repairs.
The cost of continued maintenance during times of reduced cash flow can make your blood pressure spike. But avoiding maintenance will damage the assets you rely on for your income. Not only that, but by putting off repairs now, you’ll inflate your costs—and the damage to your property—down the road.
If your properties are currently occupied, regular maintenance and inspections must continue. This is your legal obligation as a landlord even if your tenants have stopped paying their rent. In cases like this, which are not uncommon in a poor economy, you will have the opportunity to seek repayment later. But while tenants are living in your property, you are obliged to provide a safe and secure space. Cutting back on maintenance puts you at risk of being served a rent repayment order (RRO), which would require you to repay your tenants up to 12 months’ rent.
That’s not an order you want to receive when interest rates are climbing.
Key Takeaway: Find New Opportunities Amidst Rising Interest Rates
When interest rates were low, it was a great time for investment. Now that they’re rising, landlords must switch gears from investment to optimization of operations.
What can you do to modernize your operations? What cost-cutting tools are available to you? How can you replace your biggest expenses with leaner and more efficient alternatives?
During times of economic instability, smart landlords will reassess their businesses and look for new opportunities. Start with the tips above and you’ll be on the right track to protecting your income and improving your services.