Many investors have been subsidising mortgages on investment properties from their income in the belief that capital growth would make up for this in the long term. This has become increasingly expensive.
If interest-rate rises are starting to hurt, work through your options:
- Raising rents is a possibility, particularly if you haven't done so for some time. Make sure you claim all allowable tax deductions on your rental properties.
- Selling a property, if you have more than one, will help clear some of your debt. It's probably better to protect the family home (which may have provided the equity for buying your investment properties) than hang on to the rental properties too long.
- Organise your debts so that borrowing is spread across a range of fixed-rate terms.
- Avoid panic borrowing - it may be tempting to try to reduce costs by extending the term of your mortgages or asking the lender to reduce payments but the reality is you're over-extended and need to sell a property.
If your lender stops taking on new loans or sells its loan book to another company, business may go on as usual. But a lender that's closing down its business may take a tougher approach if you get behind with your loan payments or ask for a change to your loan.
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