The rising inflation is a key talking point across the UK and is affecting all households, businesses, and industries. In January 2022, inflation reached 5.5%; by February, this rose again to 6.2%. By April, inflation has risen to 7%. The Bank of England expects inflation to reach 8% by the end of spring, but some expect the peak to reach 10%.
So, with rising costs across the UK, how is this impacting landlords and the buy to let market?
Three Ways Inflation Is Impacting The Buy To Let Market
1. Maintenance Cost
A significant aspect of the viability of rental properties is the cost of maintenance. The rise in energy bills has been widely reported, creating a cost of living crisis for many households. For landlords who include energy in their rental contracts can expect energy bills to increase significantly.
As well as energy bills, mortgage finance, insurance premiums, and property management services are all expected to increase. 52% of landlords surveyed in a recent poll believe that these costs will increase by between 25 and 50%. While 10% of landlords expect prices to rise more than 50%.
2. Property Costs
Landlords looking to increase their property portfolio face rising house prices in the UK. While property experts predict that house prices will fall significantly due to the cost of living crisis, this hasn’t been seen yet. The current picture is that property prices have increased by around 14%, compared to 12.6% in February 2022.
At the moment, it seems the majority of landlords are holding property rather than growing it. A recent poll suggests that 83% of landlords are concerned that rising inflation is reducing their ability to invest in UK property.
3. Cost Of Living Crisis
As well as protecting their own portfolio and income, many landlords feel a great responsibility to support their tenants during the cost of living crisis. In a recent poll, over two-thirds of landlords feel they have to help their tenants to mitigate the impact of the crisis. So much so that a third of landlords support freezing rents for their tenants or increasing tenancy durations. In other cases, landlords are working hard to make energy efficiency updates to their properties to help reduce energy bills.
How Will These Change The Buy To Let Market?
While these three aspects are going to change the landscape of the buy to let market, it is expected that the majority of landlords will maintain their property portfolio. 30% of landlords say they plan to downsize their investment activity while inflation continues to rise, and 33% will make no changes.
With some landlords looking to reduce their portfolios, we may find more investment opportunities on the market. The main change to focus on will be whether landlords increase their rental prices or hold their prices to better support those affected by the cost of living crisis. In this case, landlords may find their profit margin being significantly squeezed.
There is still confidence in buy to let property as an asset despite a challenging year ahead for the buy to let market. Almost 40% of landlords in the UK believe their property portfolio outperforms other assets they’re investing in.