Door set manufacturer and distributor relocates to County Durham to substantially scale operations and create 30 new jobs.
With prices rising faster than they have done for 40 years, what does this mean for landlords, asks Dale Smith, founder and director of Grey-Smith Legal. The increase in the cost of living is putting a squeeze on people’s finances in ways not seen for years. Hastened by the failure of income to keep up, the average wage rose just 4.3 per cent between March and May. When inflation is taken into account, regular pay actually fell by 2.8 per cent compared to 12 months ago. For the rental property market, this may have extensive repercussions.
Increasing prices
A GetGround survey found that four in five UK landlords were ‘concerned or very concerned’ that rising inflation will negatively impact their ability to invest in property. Over 90 per cent of respondents also believed it would mean an increase in maintenance costs, with mortgage finance, energy bills and insurance premiums cited as the main aspects likely to be impacted by inflation. Despite this, the survey found that rising inflation was unlikely to put the brakes on investment behaviour. In fact, less than three in ten landlords are planning to reduce their property investment activity. The majority of landlords surveyed were planning to remain as they were, while 24 per cent plan to increase their property portfolio, regardless of inflation.
Supporting tenants
One aspect likely to have the most significant impact on landlords is how inflation will affect their tenants. With the war in Ukraine pushing up food, petrol and diesel prices and high oil and gas prices, meaning energy bills are rising to unprecedented levels, it’s no wonder many families are left reeling.
The Office for National Statistics (ONS) has reported a 26 per cent increase in the cost of a pint of milk, while butter has risen by 21 per cent and pasta by 15 per cent. These price increases represent an impossible situation for many, which may impact their ability to keep on top of rent payments.
It’s a difficult situation for all involved and will take understanding and patience to get through it. Fortunately, the GetGround survey reports that 70 per cent of landlords feel a responsibility to help their tenants during this cost of living crisis. The most effective actions landlords can take are to temporarily freeze rents, make energy-efficient upgrades to properties and agree longer tenancy durations. Doing so will help to mitigate the rising costs for those living in rented properties.
Controlling inflation
The Bank of England (BoE) is tasked with controlling the rate of inflation, although it is some way off its two per cent target. The main tool for slowing inflation is to increase interest rates, which it has now done for the sixth time in a row, reaching 1.75 per cent. While this represents the largest increase in 27 years, it is still historically very low. For the property market, this could have a significant effect. The value of UK property could fall, and an increase in interest rates could see a reverse in house prices and an impact on affordability levels. None of this sounds particularly positive, but there are ways around it.
Investing in real estate is often seen as a way to protect against rising inflation, and landlords should consider assets that can offer them higher-than-inflation returns to beat its effects. The rental market is still incredibly strong and doesn’t look to be slowing down any time soon. This means that rent increases could potentially exceed expense increases.
Over the long term, rental properties should remain a safe bet – it may just mean a few bumpy years for everyone.