Run for the hills, the property market is about to crash!!!😱
There’s a lot of doom and gloom in the media, with talk of recession, and certainly, we’re seeing sustained interest rate rises. This is the first time I’ve seen in 15 years of investing, things are starting to get a little “squeaky bum time” but ultimately we have to remember that inflation is our friend.
Inflation will increase the value of your assets and your rental income.
Here’s a little example for you. If you bought a property last year for £100,000, with a 80% LTV buy-to-let mortgage, which you rented for £500 per month and paid interest of 3% on a floating basis when interest rates were 0.1% with the Bank of England. What would your future position be?
According to Rightmove rents have increased 11.5% (in the North-East) over the last year, so your rent would be around £558 and house prices have increased by 10.3% (again in the NE) so your property would be worth £110,300.
Over the last year interest rates have gone up from 0.1% to 1.25% or by 1.15%. So you would have been paying £200 per month in interest but now paying £277 per month (with a 1.15% interest rate increase).
Overall you’re now only making £281 pcm after interest on your property versus £300 pcm a year ago but for that £19 pcm reduction in income you’ve made £10,300 in property price growth.
I’d take a £10k gain over losing £19 per month.
What about over the next couple of years when we make a couple of assumptions. Inflation is sticky and remains at 5% before dropping to 2% (the inflation target). The government raises interest rates to 2.5% before dropping them to 2% as inflation falls.
Rent is now £585, Property Value is £115,815, Interest is £360 & Net Income is £225.
Rent is now £597, Property Value is £118,131, Interest is £327 & Net Income is £270.
So you’ve had a sticky couple of years where you’ve had to ride several interest rate rises and ridden the tiger of high inflation. What’s your final position.
Your property has increased in value by £18k and your net income has fallen by £30 pcm. If house prices, interest rates and rents hadn’t increased over those 3 years (which happened over the past 10 years in the North East) – it’d take you 600 months to make the £18k increase in property value from your rental income.
I know what I’d prefer!
It’s going to be hairy riding this interest rate tiger, but once we’re through it – I’m sure we’ll all be better off!
Remember it’s our job to GENERATE YOU LONG TERM WEALTH FROM PROPERTY…
For any sales, lettings or refurb help:
- Contact us today by phone or email to move your property to us.
- We’ll contact your letting agent to ensure a seamless tenant transfer, including the deposit, keys and all paperwork.
- We’ll contact your tenant to resolve any rent, maintenance or refurbishment issues you have, arranging a property visit if required.
- We’ll begin the process of maximising your income and wealth.