Amid RBA rate hikes and a housing price slump, many landlords are facing a harsh reality: that a jump in interest rates doesn’t necessarily mean a rapidly rising rental market, too.
While rent in Sydney is now on an upward trend, rate rises are likely to have already impacted property investors who’ve had hundreds of dollars added to their monthly loan repayments this year. And for those who’ve had to stretch into their back pockets to cover the difference… you might be begging the question, when’s it time to up my rent?
For landlords who’ve felt the squeeze or have been unable to refinance their property loan in recent times – trapped in what’s been dubbed a mortgage prison – passing on the costs to tenants may be looking like a pretty attractive option.
But before jumping to that conclusion (or a starry-eyed rent hike), a word of warning – even in a healthy rental market, unwarranted price increases still have the potential to leave your property with no tenant or income at all.
So for landlords putting larger repayments on their property, what’s the best course of action? Considering all of your options – which we’ve outlined below.
1. Adjust your mindset about your mortgage.
The most common mistake made by landlords lies in how they perceive their property loan; that is, in relation to their income, rather than considering it as the fixed asset that it is.
Treating your property loan as fixed, and your rent as irregular income, means understanding that your rental property is a business – with fluctuations in earnings, or ‘good’ and ‘bad’ seasons.
“Rental price is determined by the rental market, and not by cost to landlords,” says Cameron Murray, Research Fellow at The University of Sydney.
After all, it goes both ways. How many landlords voluntarily decrease their rent when their repayments are smaller, or their income increases?
2. Balance your household budget.
Now for some good news – there’s many ways to offset rising interest rates and loan repayments, without having to immediately increase your rent.
Consider these:
- Is there another means of adding to your income, such as renting out a space in your current place of residency?
- Are there ways to reduce your expenses, such as getting a better deal on landlord insurance, energy bills, or your home loan?
It’s worth remembering that interest rate increases are also a good thing. Just as repayments are increasing, so too are interest rates on term deposits and savings accounts. Shop around for banks advertising higher savings rates, and take advantage of these by putting savings away so that your income can go further.
3. Be prepared to receive pushback.
If you believe it’s time to up your rent, know that increasing it unrealistically (i.e, not at a competitive market rate) is likely to receive pushback from your tenant. This could leave you at risk of losing a good tenant, and/or of being priced out of the market altogether – and stable rental income is always a better deal than no rent at all.
However, if you’ve considered all of the above and increasing your rent is the best option, have a chat with your property manager. They’re likely to have a good relationship with your tenant, and can better assist with opening a positive lease negotiation through experience.
Note that for periodic tenancy agreements, rent can only be increased:
- With 60 days’ written notice to the tenant
- Once in a 12 month period, after notice is provided.
Prudential Real Estate Campbelltown | (02) 4628 0033 | campbelltown@prudential.com.au
Prudential Real Estate Liverpool | (02) 9822 5999 | liverpool@prudential.com.au
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
