We’re all aware of big increases in the cost of living. And as costs go up, inflation goes up, too.
Inflation rises when the cost of goods and services increases over time. It’s often affected by supply and demand – in fact, one of the main reasons behind the recent rise in inflation is the cost of fuel, driven by the war in Ukraine.
The UK inflation rate currently stands at 9.3 per cent. That’s lower than the 11.05 per cent rate recorded in October but still far ahead of the historically low average annual inflation rates we have enjoyed since 2009.
Is there ever a positive side to inflation?
What are the effects of rising inflation? Anyone with a mortgage will no doubt already be feeling the pain. That’s because the Bank of England has raised the base rate – linked to mortgage payments – in an attempt to keep inflation down.
Inflation definitely doesn’t help if you are trying to manage your household bills, but it can be a boon to savers. It may also surprise you to hear that landlords stand to benefit from increases in inflation.
Grow your assets, find more tenants
As house prices rise due to inflation, a landlord’s investment will also increase in value (an average property in Ilford is currently £518,000 compared with £349,000 in England and Wales).
Rising house price inflation deters first time buyers, therefore increasing the competition for rental properties. When rental stock is in short supply (as it is now), rents will go up. Rents in Ilford have already risen significantly over the past year, and the current average rental price is £1,836 pcm.
Extra value from your mortgage
If high inflation continues, buy-to-let mortgages will, in effect, become cheaper over the long term. Take the example of a landlord who might have taken out an interest-only, buy-to-let mortgage of £200,000 a decade ago. When paying the loan off today, the landlord would find it has a ‘real terms’ value of just £137,200.
That’s because we have seen 31.4% inflation over the last ten years, and each year the average inflation rate has chipped away at the underlying value of the loan.
Are there any downsides?
Clearly, the cost of living squeeze will create some problems for landlords, as tenants could default on their rent. Repair and maintenance work also becomes more costly when inflation bites.
However, landlords can overcome these problems by taking a proactive approach. If you engage an efficient property management company to oversee the tenancy, this could, in the long run, save you money.
The manager will form a relationship with your tenants and look out for any issues. Managers are trained to spot potential problems, from tenants who are about to fall into arrears to minor repairs that might become major problems if left untreated.
If you would like to know more about Oakland Estates’ property management, call us for a chat. As a landlord, you’ll be fully supported by local Ilford estate agents who understand every aspect of the property rental business
Give us a call at 0203 972 7341 or email info@oaklandestates.co.uk.
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