Inflation, Mortgages and UK Property

If you’re keeping up with the news then you’ll know that a lot of focus is being placed on the current inflationary pressures on the economy, the subsequent interest rate rises by the Bank of England, and what that means for the UK housing market as a whole.

The first thing to make clear is that the UK domestic housing market and the UK investment property market are two different things. The UK domestic market ebbs and flows fairly significantly with supply, demand and the mortgage market, and those within this market are more susceptible to rate rises than investors.

So it requires a little further investigation and also some further context to determine what the current inflation and mortgages mean for property investors in the UK and does it, in fact, present some opportunities.

Inflation, mortgages and property

In brief and simplistic terms, inflation happens when prices rise for goods, assets or services. The reasons for inflation can vary; whether it’s because of a lack of supply, because of an increase in costs or external factors such as wage increases.

What we know from recent figures announced about UK inflation is that it isn’t budging, and is sitting stubbornly around the 8% mark, higher than most other advanced economies.

For countries that issue their own currency, such as The Fed in the US, or the Bank of England in the UK, their main response to halt inflation is to raise interest rates. In practice, this means increasing the amount they charge retail banks to borrow money from them. That, in turn, means the banks raise their interest rates too.

Borrowing money becomes more expensive, and savers get a better rate of return for their money if they store it in banks.

The ultimate idea is to reduce spending in the economy, cool things off and stop prices from going up, but that comes with more complications too, such as mortgages.

Increased interest rates mean more expensive mortgage rates too, so those that are coming off a fixed rate are now being faced with more expensive repayments, and it’s anticipated that this could lead to a cooling in the domestic market with demand and this could lead to a price drop.

Off-plan and residential mortgages

Leading on from the difference between the domestic market and the investment market, most off-plan property investments are bought outright without a mortgage or borrowing, and so this is a big reason why interest rate increases don’t tend to have a huge impact in this regard.

Certainly, from our perspective, we’ve not seen any significant drop off in demand for investment properties despite other economic conditions.

Further to this, investment properties that are bought on a mortgage, are mostly funded with buy-to-let mortgages which have different criteria and are funded differently to residential mortgages.

That’s not to say that landlords won’t feel the squeeze from rate increases, but not to the same degree.

Alternative property investments

Another point to this is that alternative property investments such as holiday homes and supported living investments aren’t affected in nearly the same way.

Indeed, in recent polling by Martin Lewis up to 40% of Britons said they wouldn’t be travelling abroad this year and instead would be taking a holiday in the UK – resulting in an uptick in the holiday let market.

Similarly, supported living properties occupied by residents continue to provide investors with a consistent income stream, and the demand is rising continuously in the UK. As a result, many investors are deciding to diversify their portfolios with these more niche offerings.

Buy-to-let and rental property will continue to see demand rise and this is also coupled with stifled demand, so despite tougher economic conditions UK property remains a sound investment.

If you’re interested in investing in UK property, whether that be student, residential, commercial, supported living or holiday property, we can help.

With almost 20 years of experience in the UK property market and a proven track record, we are perfectly placed to find the right investment for you. Get in touch today!