Why rising interest rates get experienced property investors excited

5 reasons why property investors love rising interest rates

In my last three articles, I’ve discussed various aspects of the impact of rising interest rates. You will have learned:

But what if you are considering property investment for the first time, or pondering whether now is the right time to invest in buy-to-let?

In this article, the last of my series about the impact of higher interest rates and how to invest in property like a professional when interest rates rise, you’ll learn why now could be the perfect time to invest.

Do higher interest rates scare you?

For many property investors, higher interest rates bring the spectre of decreasing profits. Mortgage payments will increase for those who haven’t fixed their mortgage rates and are still working with variable rate or base rate tracker mortgage products. For those who have a fixed rate mortgage, the protection only lasts until the end of the fixed rate period. There could be a nasty shock to the finances when that fixed rate is lifted.

Many property investors will never have experienced a rise in their interest rate. The Bank of England (BoE) hasn’t increased the base rate for 10 years. However, it’s only those property investors who haven’t prepared for higher interest rates which should be scared. If you own investment property already or are considering doing so, as I described in my last article, there are strategies you can use that could increase your buy-to-let profits despite rising interest rates.

A little fear, however, is a good thing. It keeps you alert. Keeps your eye on the prize. Helps you to make the right decisions. Complacency is a killer. So, don’t be complacent. Instead, always consider your options and what outcomes might occur in different circumstances. It’s not the rise in interest rates that hurt investors. It’s their lack of preparation or reaction to it that hurts them.

Remember that home buyers are more affected than property investors

The average interest rate on a mortgage is 4.6%. While all mortgages are different, there is one thing we can say about variable rate mortgages: an increase in the interest rate will hit the pockets of mortgagees. Homeowners could be facing mortgage payments that increase by hundreds of pounds. They must suck it in and get on with it. They’ll have to find the extra money from somewhere or cut their expenditure somehow. Cash savings could be used to close the gap in the short term until other solutions are found.

It isn’t quite the case with property investors. A buy-to-let landlord always has the option to raise rents. You may have to wait a few months until the time of the next rent review, but you can raise the rent to increase the gap between your income and mortgage payments.

In other words, if you employ a sensible strategy, there is no reason why an increase in interest rates should harm your cash flow and ability to sustain the buy-to-let mortgage.

Why you shouldn’t hesitate to invest in property

This disparity between the way that higher interest rates might affect home buyers and property investors is one reason why property investment is viable in all seasons. Even when interest rates are rising. In fact, some of the best property investment opportunities are to be found in an environment where interest rates are going up. It is because:

  • Inexperienced investors suddenly run scared of investing. So, they drop out of the market, along with would-be home buyers. It means there should be less competition for the property you want to buy.
  • These same investors rush to sell properties so as not to get caught in the ‘interest rate trap’ because they don’t understand the strategies to use to mitigate the impact of an interest rate hike. You could find that there are some very interesting opportunities available at great value prices.
  • Right now, there is a lot of competition in the buy-to-let mortgage market. Fixed-rate mortgages are at or near their lowest ever rates. You could lock in a great rate for two, three, or five years, or even longer. During those years, your mortgage payments will be fixed, and you could increase your profits by simply raising rents in line with inflation.
  • Some of the most profitable property investments are made by doing the opposite to what the crowd is doing. If you know how to invest throughout the property and economic trend cycle, you are more likely to become a wealthy property investor.
  • While there is some trepidation about higher interest rates, it is very unlikely that they will reach anywhere near the level they have been in the past. The BoE base rate is currently 0.25%. In the mid-1980s, it was still in double figures. Even 10 years ago, just before the Global Financial Crisis tipped the world economy into recession, the UK’s base rate was 5.75%. Mortgage rates were even higher, and yet property investment has always proved profitable in the medium to long-term.

How could you invest today and beat future interest rate rises?

Let’s say that you invest in a property with a £50,000 deposit and use a £150,000 mortgage fixed for five years at 5%. You receive a gross yield of 7%. For this exercise, because we’re looking at the impact of interest rate rises, we won’t include other expenses such as investment property management and maintenance.

Now, let’s say that inflation over the next five years averages 2.5%. And the base rate increases by 1.5%, sending your mortgage payments up by the same amount. Here’s how your net income would look in five years’ time when your fixed rate expires.

Year Rent Mortgage Rate Mortgage Interest Net Income
Year 1 £14,000 5% £7,500 £6,500
Year 2 £14,709 5% £7,500 £7,209
Year 3 £15,076 5% £7,500 £7,576
Year 4 £15,453 5% £7,500 £7,953
Year 5 £15,839 5% £7,500 £8,339
Year 6 £16,235 6.5% £9,750 £6,485


In this example, in the sixth year of ownership, you revert to making the same net profit you had projected in year one, despite interest rates rising by 1.5%. In the intervening years, you’ve benefitted from extra net income because:

  • You fixed the mortgage interest rate at the outset in an environment where interest rates are rising
  • You increased the rent by the rate of inflation

Not only this but if the property still yields a gross 7% in rental income, it will be valued at almost £232,000 – an increase of £32,000.

If you think it’s wrong to be a property investor when interest rates rise, think again

As you can see, it is possible to continue to make market-beating profits even when interest rates are rising. Provided you employ the right strategies and buy in the best places to invest in property UK, rising interest rates could be your golden opportunity to start or grow an investment property portfolio. And this is where Gladfish excels. We help property investors like you to find and invest in the best properties in the best locations.

Don’t let the fear of rising interest rates destroy your long-term future. Contact Gladfish today on  +44 207 923 6100, and together we’ll build an investment strategy that uses property as your path to real wealth and the lifestyle you desire and deserve.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
October 30, 2017

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