The UK economy is experiencing once-in-a-generation disruption at the present moment, as a perfect storm of international instability, trade disputes and rising costs amount to a difficult time for households and businesses alike.
The difficulties could also be shared by landlords, as potential shifts in the housing market potentially mean more costs. What is the current landscape in the housing market, and how could it affect landlords?
The Current Landscape
The housing landscape as it stands is unusual, to say the least. House prices have risen considerably over the past two years, and, while price rises have somewhat cooled, growth continues in the market. An emerging cost-of-living crisis, which has seen the rate of inflation spike above 9%, threatens this growth though – with recession, and a potential housing crash, imminent.
But why exactly have house prices risen so readily in recent years? The initial spike in property values occurred at the start of 2020, following the onset of the coronavirus pandemic. House sales were low, but demand for property was extremely high, due in part to a burgeoning ‘race for space’ as households sought larger suburban properties with extra rooms and gardens.
The government introduced a moratorium on stamp duty, lowering the cost to buy for households and incentivising more to rush to market. The resulting rush saw demand spike yet further, driving prices up. The rise in prices only slowed somewhat after stamp duty was reinstated, as dwindling availability met continued demand.
The Inflation Crisis
The UK’s economy is facing existential difficulty as a result of the growing cost-of-living crisis – the result of a stratospheric rise in the cost of energy tariffs, alongside financial pressures on international trade. Economists are preparing for a period of recession, bringing with it potential disaster for the seller’s market that has endured with regard to housing.
The Bank of England’s response to the crisis has been to attempt to control inflation with interest; the rate of interest was increased by the largest amount in 40 years, in hopes of curbing the likelihood of economic collapse.
Impact on Landlords
There are various ways in which the current landscape could impact landlords. Many potential changes to relationships between landlord and tenant will be mitigated by the letting agencies managing properties, but some changes will impact landlords directly.
For one, the Bank of England’s approach to increasing interest rates will have a knock-on effect on mortgage repayments, when fixed rate periods end and new rates balloon. For buy-to-let landlords, this could mean a significant reduction in monthly rental profits.
However, where there is crisis, there is also opportunity. First-time buyers are prohibitively priced out of the property market, and demand for rental properties will remain high – or even grow – throughout the coming months and years.
