How are rising interest rates and inflation affecting property investors? Mike Collins Mortgages

A Q&A with financial advisor Mike Collins

Since December 2021, the Bank of England raised interest rates seven more times. They’re now the highest they’ve been in 14 years and it’s having a major effect on the current housing market. Rising rates can impact landlords and property investors alike.

Will higher interest rates have an impact on the housing market

Mike:First-time buyers are finding it difficult to get on the property ladder because of rising property prices. The pandemic caused a surge in house prices, but a shortage in homes available. This has made it difficult for people to move or even buy their first house.

It appears that there is still a race to space. This began with the pandemic, when people realized they needed more indoor and outdoor space.

However, if interest rates keep rising, it’s likely we will see landlords not making money and unable to afford the increased tax or higher interest rates on their mortgages.

However, if people can; afford to buy they surely need to rent but if they can’t afford rent either, then there really is a major problem for the individuals and for economic growth in general.

Can we expect to see stricter property investment conditions following the latest rise in property prices?

Mike: Rising interest rates can lead to mortgages being increased, which in turn increases borrowing costs. Variable mortgage holders may need to notify tenants in order to raise rental prices to reflect new costs.

Those investors who are looking for the best mortgages for new property won’t be able to achieve anything like they did a year ago and inevitably, this causes tightening of net yields.

The result of higher energy costs and increased living costs is that inflation is at its highest levels in 40 years. This year will be tough for landlords, with net rents dropping and rental returns weak.

Could inflation be a good thing for property investors

Mike:If you have debt, inflation can have its benefits. Investors need cash to invest. You can get a 75% LTV loan mortgage. Over time, with a 0% interest-only mortgage you’ll still only have paid the interest off in 20 years.

The mortgage amount will not change if the property’s value triples. If you sold the property, you’d need to pay capital gains on it (unless it was your own home) but you’d still have enough cash to pay the mortgage off outright with plenty leftover. This could also mean that you have extra cash to pay off any other BTL mortgages.

Higher interest rates are one of the risks, but you can still try to get the best fixed term mortgage.

What will the property market look like in 2023?

Mike:It is possible that interest rates will rise further as inflation continues to rise. Investors are advised to lock-in fixed-term rates as long as possible.

Rates rising are a problem because fewer people can afford to buy a home or move, which can lead to house prices dropping. Real values could suffer if house price growth slows down to a moderate level while inflation continues rising.

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