The inflation effect on buy-to-let investments

With record low interest rates and inflation levels, buy-to-let investments have never looked so appealing to potential investors. But how would a potential increase really affect your investments?

The inflation effect on buy-to-let investments


• Mortgage borrowing remains affordable

• Interest rates set to stay at 0.5% low

• First interest rate increase expected by August 2016

Last week saw a vast amount of news headlines concerned with the potential raising of British interest rates. Naturally, the rumour mill was in overdrive about the results of so called “Super Thursday” on the 6th of August 2015 – the day the nine key employees from the Bank of England got together to determine interest rate policies and the future of inflation.

In the last few years inflation rates have fallen to their lowest levels ever, almost turning into deflation (negative inflation). Consequently, this record low inflation has caused optimum borrowing conditions for buy-to-let investors, as interest rates from mortgage lenders dropped to as little as 0.5%.

With an ever-strengthening and almost fully recovered economy, many expected the Bank of England thus to announce an upsurge in interest rates. Nevertheless, it turned out this was not the case, as a clear majority of the committee voted to keep the rates static.

An increase in interest rates would evidently have affected the UK buy-to-let market: higher rates would mean that borrowing conditions become tighter, leading to less people being able to afford mortgages for buy-to-let investments. In return, rising rates would also affect tenants in the private rented sector: with higher borrowing interest rates, it would become harder for landlords to cover their expenses with their rental returns, meaning that they would have to pass on their rising costs to their tenants in form of rent increases.

It is estimated by experts that the bank’s interest rates will remain at 0.5% at least until the second half of 2016. This would mean that British interest rates have stood still at the 0.5% mark for over 7 years by the end of August 2016.

At their meeting last week, the experts from the Bank of England furthermore announced that according to their forecasts, the committee expects inflation to stay static at around zero for the foreseeable future. It is not meant to reach its goal of 2% until another 2 years’ time.

The current borrowing conditions make right now an opportune time to invest into buy-to-let, particularly thanks to excellent available fixed-rate offers. At the same time however, investors looking to expand their portfolio are advised to stay aware of the anticipated interest rate increase over the next year.

Whilst rates will increase eventually, if planned and researched carefully, good buy-to-let investments will cover the rising cost of mortgage borrowing, easily withstanding small fluctuations in the market place.

If you’re looking to take advantage of the current buy-to-let conditions, you can browse the carefully selected investment options available with Knight Knox. Alternatively you can contact 0161 772 1370 and speak directly to a professional property consultant.

yieldit vertical - April 2019

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