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Will Rising Interest Rates Burst The UK Buy-To-Let Property Bubble?

If you’re an existing property investor, you’ll likely have enjoyed a period of time when your money really has been “as safe as houses”. However, 2022 may be the year to scrutinise your next move.

House prices have boomed, rental costs have gone up, and with the stamp duty holiday and low mortgage rates in 2021, landlords have had plenty to be cheerful about; but the pandemic created a lot of churn in the housing market, including a mass urban exodus to more tranquil locations!

There are many factors to take into account if you are thinking of selling your buy-to-let property. By the end of this article, you’ll have a clear understanding of the basics you need to consider and the next steps you need to take to help safeguard your investment portfolio as interest rates rise.

How might the interest rate rise impact me?

Interest rates have been low in the UK for some time, so upward movement is to be expected (bear in mind the government has its own loans to pay, so its borrowing becomes more expensive when interest rates go up).

When interest rates go up, a bit more is added to your savings account, but it will be minimal. However, when you consider large mortgages worth hundreds of thousands of pounds, a 0.5% increase could be very significant indeed. 

Rising interest rates can hurt fixed interest investments. For example, if you have a corporate bond that you buy over 10 years and it pays 0.3% per annum, you will still receive 0.3% per annum if interest rates go up; but if they go down, the value of your bond goes down because you are still only receiving a fixed rate of 0.3%.

This is one of the reasons why it’s safer to diversify your portfolio. It’s not possible to take fixed interest funds out of a portfolio without greater risk.

Whilst building a housing portfolio has been considered relatively “safe” for some time, one of the biggest threats rising interest rates pose is to your buy-to-let property investments.

Look at the big picture

As with any investment, you need to consider the long game to help maximise your profit.

Landlords have greater responsibilities now with an increase in regulatory hoops around Energy Performance Certificates (EPC) and gas safety checks (repeated every year where relevant). New tenancies have required a valid Electrical Installation Condition Report (EICR) since July 2020, but as of April last year, it also applies to all existing tenancies. Once completed, a new inspection is required every five years. EPCs are also expected to be high on the agenda in 2022 as the government attempts to achieve its zero carbon emissions target by 2050. 

These costs add up and take chunks out of your bottom line. 

Many of our clients at Applewood Independent sold their investment properties in 2021 at a generous profit, but the evidence hints that the property bubble may be preparing to burst.

What might cause the property bubble to burst?

With a rise in the cost of living, fewer people will be in a position to get on the property ladder for the first time because they have to pay more for their heating and electricity, which means they have less ability to save.

If people are struggling to buy their first home, there will be a plethora of houses on the market, which actively drives prices down. Residential house prices will also be hurt by the rise in interest rates. We keep seeing downward pressures and this will impact investment portfolios.

In addition to this, due to the rise in interest rates, any properties that are financed by a buy to let mortgage will become more expensive, especially if they are on a variable interest rate. This has the potential to deter some investors; the additional cost will increase their monthly mortgage payments, and eat into their overall profit.

What should I do about my property portfolio?

We anticipate that the writing is on the wall for buy-to-let property investors, especially if you have an interest only or variable rate mortgage. You might like to reconsider your position; it’s highly unlikely that the financial landscape in 2022 will make your investment any better unless you are holding a huge amount of equity.

Houses have been selling fast but we predict that will slow down if not deflate, especially when people receive their utility bills for the first and second quarter of the year, and the reality of a hike in the cost of living kicks in. If homeowners find themselves in negative equity, there will be many more homes flooding the market; competition drives the price down. Instead of there being very few buy-to-let opportunities, there’ll likely be a huge number in your area (which negatively impacts property investors).

The cheapest ones will be sold or rented out first, which is a downward pressure on capital values. This means your investment is not as valuable any more because there is an abundance of choice.

Unfortunately in the UK if property investors defer making a decision on their next steps, they’ll feel the pinch. As French-British financier and business tycoon James Goldsmith once said: “If you see a bandwagon, it’s too late.”

Should I worry about my buy-to-let investments?

Everything has peaks and troughs, nothing can make or lose money forever. However, if you want to safeguard your hard-earned cash, it’s vital that you get professional insight to help you make your decision if you are thinking about selling. Remember that you may have capital gains tax to pay if you do decide to make the most of the current market.

This article has highlighted the regulatory hoops, the changing landscape of the property market, and demonstrated how the rising cost of living will lead to more homes being sold which means it’s no longer a seller’s market. There are, of course, also long-term implications for those who invest in buy-to-let properties (if you buy at the peak, you decrease your chance of making more substantial profit over time).

If you’d welcome input, expertise and experience from Applewood Independent, please get in touch via or

As I mentioned earlier, it’s no time to sit on the fence and ponder; interest rates, alongside the other factors we’ve explored, will impact the buy-to-let property market. 

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.