Property Investing In Periods Of Inflation
Inflationary pressures force most property investors to consider their mortgage rates and overall affordability.
Although many landlords’ rental revenues are improving, most investors are concerned about the direction of rates, maintaining a buffer, and keeping a close eye on the property market and home price rises.
☑️ MORTGAGE RATES
Interest rates remain historically low, but they are obviously being utilised as a key weapon by central banks to combat inflation. As a result, the trend is upwards, and investors are being pushed by their mortgage brokers to lock in the best offers they can — and to consider early refinancing on current loans, whenever possible.
Inflation may work in the investor’s favour in the long run when it comes to paying off debt… even with interest-only loans, which can basically leave the relative debt much less than the initial loan. However, inflation might have a detrimental impact elsewhere.
☑️ BUFFER
After a rough number of years, rents are rising in many regions of the UK right now, which is excellent news for landlords. However, there may be future pressures on net earnings from other sources. Adding a loan-to-value buffer to your next mortgage refinancing, or having a greater cash reserve aside from your rental income, can develop additional resilience against any unanticipated challenges.
Similarly, for any renovation work involving new or existing buildings in your portfolio. Supply chain difficulties, labour shortages, and rising material costs continue to disproportionately affect the construction industry. Prices are prone to significant fluctuation, so your refurb expenses should be anticipated with an adequate buffer in place.
☑️ PROPERTY PRICES
Higher mortgage rates, coupled with a cost-of-living crisis, have sparked widespread worry about property prices. People frequently wonder whether there will be an impending property crash,
According to the data I’ve seen, there has been a minor cooling off in most of my favourite investment areas, in terms of the post-pandemic house price rises we’ve seen. That’s not necessarily a negative thing.
I don’t have a crystal ball, but with a chronic undersupply of UK property, rampant demand, and an abundance of mortgage funding, a market meltdown seems unlikely anytime soon. Having said that, there is no disputing that, due to inflation and the ongoing cost of living situation, affordability is a key concern for most investors…
