How can inflation affect the property market?
In the long-term, inflation rarely has a negative effect on the property market. This is because property values tend to increase, while development costs also rise as the cost of construction materials are driven higher. The result is slower production and higher prices for new homes.
At the same time, during an economic downturn, the cost of borrowing tends to increase, as do rental rates, as people opt to rent due to unfavourable mortgage rates. This leads to more tenants looking to rent which increases demand, which is ideal for property investors.
A note of caution
Some experts predict that inflation could eventually rise above 8% and remain at that level for the remainder of 2022. It means growing inflation levels could have some short-term affect on buy-to-let landlords during this period.
Recent surveys have revealed that landlords are concerned that the growth of inflation will affect their ability to profitably invest in UK rental property. If inflation continues its current trajectory, it is predicted that the cost of investing could also increase.
The three aspects of property investment most likely to be impacted by inflation are insurance premiums, energy bills and mortgage finance. Due to the challenges this poses, there is a chance that property investment activity could slow down while adjustments are made.
Rental prices have increased by around 2% over the past year. In an environment where expenses are rising, landlords with short term leases should be able to slowly increase their rent so they remain aligned with inflation rates.
It means landlords have the flexibility and opportunity to cover their costs without inflation having a long-term negative impact. The current market currently demonstrates strong demand, so rent rises may even be able to exceed expense increases.
Should you invest when inflation is rising?
Rental demand remains high, far outstripping house building figures, so by investing in the right areas buy-to-let landlords can cultivate a constant stream of tenants, while benefiting from positive growth value. Landlords already in possession of buy-to-let properties should also have strong protection against rising inflation rates.
Property is a leveraged asset, so as long as interest rates do not rise too sharply, payments should remain stable, while the property value continues to increase.
Rising inflation could also help you make money on your deposit. For example, if inflation doubled the value of your property, this means your down payment value has also increased.
Are you planning on becoming a landlord?
Being a landlord requires a lot of time and effort, which can be difficult if you have other serious commitments in your life. Proper Local’s property management services can make the process much less stressful, while also helping you to maximise your yield. To find out how, and to arrange a rental valuation, get in touch with our team today on 0203 282 3733, or by email This email address is being protected from spambots. You need JavaScript enabled to view it..
