Rate and rental madness l Vesta blog

Rate and rental madness

October 7, 2022

We were not quite sure exactly what to include in our latest blog post! We would normally have a draft ready a week in advance based on market trends or anything new to report. However, over the last couple of weeks things have been changing daily if not hourly and that draft is now sadly redundant!

So, what do we know and how might this impact the rental marketplace...

Cost of living crisis is here to stay. The spiraling cost of utilities is impacting all of us as individuals in our own homes, but also indirectly via small business and big business utility costs. Areas like manufacturing, food production, storage, and logistics all require energy and their costs are soaring which will double the impact on products they sell/offer and therefore add to the cost of living crisis.

Experts advise that even if Putin is stopped and/or leadership changed the impact of what he has done will roll on for some time and possibly continue for months if not years across energy prices and the knock-on effect on rising costs.

Rate increases. After years of low rates, we have seen a lot of panic and expert opinion about rates climbing as high as 6%, maybe even higher. Many mortgage providers have withdrawn fixed-term products while they adjust and price the latest market conditions. Things are changing very quickly, in January peak predictions for interest rates were 1.5%, in August they went up to 2.75%, after the mini-budget they rose again to 4.75%, and last week they went up yet again to 6%. 

The market is very fluid right now and it is fair to say that rates will be going up! To put this into perspective, the average mortgage increase based on what has already been predicted means people will be paying £275 more per month and it is likely to go up.

For many people who have locked into 2, 5, and even 10-year fixed rates they will be breathing a sigh of relief. However, for many others, their existing fixed term rates will expire and their new mortgage rate options are likely to be significantly higher. Over 2 million fixed-rate mortgages will be ending over the next 2 years, impacting many homeowners and landlords.

Rents increasing. With higher costs rents are going up. Add to this the lack of rental stock, a direct result of the government 'attacks' on landlords, means this is a problem that is likely to get worse. London rentals are often so oversubscribed that bidding wars have become a regular phenomenon. A property in Canary Wharf recently had over 15 interested parties competing for the property! Great for landlords!

High employment. Employment is at its highest level for some time. There are still many job vacancies and it is very likely that with the increased cost of living and mortgage rates that many people will look to take on a second job to help make ends meet. The danger of a recession is that we will see many cuts and that might be a growing concern for many.

Affordability. The biggest concern however is not the mortgage rates but the affordability. Considering rising costs and rising rates plus high loan-to-value mortgages and the growth of debt over the last few years of low rates means many people might simply not be able to afford to buy or live in their homes if things do not get under control soon. Historically this has resulted in a flood of properties hitting the market all at once, creating excess demand and thus pushing prices down.

For the last 3 years there has been excess demand from buyers for the available properties and we already know there aren't enough new homes being built. So, it might be more likely that price growth stabilises rather than resulting in big reductions. In previous recessions, house prices continued to rise in a number of locations so where your property is based will play a big part once again. There might be winners and losers based on the location and impact of a recession.

Rents going up and prices stabilising might make the BTL market very attractive to people with cash reserves. Those who do require debt will need to make sure they do their sums and focus on properties that work long-term. There will be a swing from short-term focussed ownership and property flipping to medium to long-term strategies. 

Is it a good time to invest in property? Unfortunately, we cannot answer that one for you, but we can tell you that rents are going up. A persistent lack of available stock and growing tenant demand is pushing rental prices up.

Important Note

All information contained in this website is provided as a guideline only, is based on estimates and assumptions, may not be accurate or complete, and is subject to change. We make no representations or warranties with regards to this information, expressed or otherwise. A buyer who relies on such information does so at their own risk. Buyers are advised to seek independent financial advice and should undertake their own due diligence.

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