Rising interest rates have affected everyone differently, but there have been significant implications for investors and renters in the real estate market.
For property investors, the impact of rising interest rates is predominantly felt through variable mortgage rates. As interest rates increase, the cost of borrowing rises which potentially reduces the purchasing power of investors.
According to Jaime Pratt, head of PM at VPM, this can slow down property investment activity as securing suitable financing terms for each circumstance becomes increasingly challenging.
“In addition to these challenges, rising interest rates are a major contributor to increased holding costs for property investors,” she says. “Mortgage repayments become more expensive, impacting the overall return on investment.”
As a result, investors should reassess their financial strategies regularly and carefully consider the potential impact of these rate rises on their cash flow.
Tenants, on the other hand, are affected both positively and negatively. “Rising interest rates could slow down otherwise rapidly increasing property price growth, making homeownership more of a reality for renters, which is excellent!” Jaime explains, “But you have to remember that many market factors also influence this.”
Jaime also says that tenants need to be aware of the negative impacts of rising interest rates. “We’ve worked with many investors affected by higher borrowing costs who have been inclined to increase rents to maintain their cash flow and profit margins,” she says. “It’s so important that investment properties are managed effectively to ensure fair dealings and transparent communication between property owners and their tenants so everyone is on the same page.”
The best advice for tenants and landlords is to stay abreast of economic trends and interest rate movements.
“If you’re not sure and need guidance, our local and trusted property management team is on hand to help you navigate any knowledge gaps and help steer you through these challenging times as stress-free as possible.”