What To Expect From The Buy-To-Let Market Over The Next Few Years

Home Improvement May 24, 2023

In the UK, we’re in a time of some turmoil financially at the moment. There are very high interest rates compared to what we have been used to in recent decades meaning that borrowing money and getting mortgages is more expensive than ever. The war between Russia and Ukraine has also led to a big increase in energy costs and food costs leading to the so called ‘cost of living crisis’.

People have less expendable income, and it is more expensive to borrow it so whether you are currently a landlord or you are looking to get in to the buy to let property market, it is really worth looking at the short and medium term future before moving ahead and getting landlord legal advice to ensure you know the implications of everything you do in the off chance something goes wrong.

Interest Rate Changes & Rental Yields

Interest rates have shot up in recent months on the back of rampant inflation in the UK. By increasing interest rates the Bank of England hope that inflation will start to come down and then they can reduce interest rates again. At the moment inflation is still running at around 10-11% and hasn’t come down as quickly as expected which is why interest rates went up once again in May 2023. To understand how quickly interest rates have gone up it is worth remembering that in December 2021 rates were at 0.1% and even in May 2022 they were still at only 1%, that means that in the last year they have increased from 1% to 4.5%.

The last time this happened was during the financial crisis in 2007/2008 when they peaked at 5.75% but were back down at 0.5% by March 2009. It is expected that interest rates will this time take longer to come down and that it will be 2024 before they really start to reduce but will probably not go down to the levels of 0.1-0.25% for a decade at least.

Interest rates have a huge impact on your rental yield. If you are on a variable rate mortgage or your fixed term rate has ended, you could be paying hundreds of pounds a month more in repayments which could all but destroy the 7% rental yield you may be getting. At times like this, cash is king, borrowing money is expensive and unpredictable.

How Will Property Prices Be Impacted?

There are always some properties at the higher end of the market that are unaffected by recessions, housing price crashes and rampant interest rate changes but for the vast majority of us it makes a huge impact. It is expected that house prices will probably flatline in most areas or even go down slightly. As borrowing becomes more expensive people are reluctant to take on more debt and won’t be buying that more expensive house they have always dreamed of, they’ll be waiting for the rates to come back down again before getting a mortgage.

In all likelihood this will lead to a bit of a stagnant property market where it will become more difficult to sell and the prices won’t go up in the way that they were 5 or 10 years ago. Remember to consult with specialist landlord solicitors when buying or selling a property.