Investing in UK property needn’t be hindered by high inflation


UK inflation hit 9.1% in May, and although there may be a knock-on effect in the UK property market, the investment landscape remains positive according to experts.

Inflation in the UK hit its highest level for 40 years in May, against a backdrop of rising gas and fuel prices and the cost of living crisis. Alongside this, the UK property market, which has seen exceptional growth in recent years, has shown signs of levelling off, although prices continue to climb.

Interest rates are also rising which is affecting some UK property buyers’ spending power. However, according to William Stevens, head of financial planning at Killik & Co, there are multiple factors to bear in mind when considering property investment.

Buyers who plan well for future fluctuations, and select the best mortgage product for them, are the ones who will reap the best long-term rewards from their property investments.

Proper planning

As with any investment, whether it be property or stocks and shares, research is vital, as is understanding all the risks involved. For those purchasing UK property, says Stevens, the key factors are “affordability and interest rates”.

He explains: “Rising inflation means that goods and services are likely to cost more in the months and years ahead.

“When deciding whether to buy a property, the affordability of mortgage payments over time should be a buyer’s main concern; when inflation is high, it is more important than ever to ensure they have surplus income to cover higher living costs, including food, travel and energy.”

Central banks tend to raise interest rates to combat the effects of high inflation. We have been used to an extended period of historically very low interest rates, so people could see mortgage costs rising.

But Stevens adds: “However, buyers who have properly factored affordability and rates into their plan have no reason to let the inflationary environment impact their decision to invest in property.

“Given the timespan involved in mortgages and homebuying, most people are likely to move through several cycles of inflation during their lifetime.”

Mortgages for UK property

Whether you’re a homeowner or a property investor, choosing the right mortgage – unless you’re a cash buyer – is hugely important when thinking of long-term costs and profits.

Stevens advises buyers to look into more long-term options for their UK property as interest rates seem set to rise. Particularly if you know how long you plan to keep the property, you can lock into a fixed rate to provide certainty for the future.

He adds: “But buyers should be aware of exit penalties if they decide to move before the end of the agreement. It’s also important to shop around for the right deal when the term comes to an end.”

One popular borrowing strategy for property investors and buy-to-let landlords is to opt for an interest-only mortgage. Monthly outgoings are much lower, and the mortgage can be paid off in full upon sale of the property.

On this topic, Stevens comments: “Any buyer looking for an interest-only mortgage should remember that payments will escalate as rates rise.

“As a result, the current environment may lend itself more towards a repayment mortgage structure, where, because repayments chip away at the capital, monthly costs are more likely to go down or stay relatively flat.”

What about a housing market crash?

A crash is one of the biggest worries for anyone considering buying property right now, whether it’s to live in or to rent out. However, it is also one of the major reasons people tend to invest in UK property, as it is known for its relative stability over time.

As Stevens points out, house prices are generally decided by supply and demand, as well as economic factors such as inflation and interest rates. There are now some signs of cooling, although growth is still there.

He explains: “On the demand side, this is caused by the rising cost-of-living and higher mortgage leading to a smaller number of buyers being able to enter the market for affordability reasons.

“The same factors affect supply in a slightly different way. An affordability struggle could lead to higher-than-normal number of homeowners struggling to make their payments. As a result, more foreclosed properties could be put up for sale by lenders, increasing supply and putting downward pressure on the market.”

However, Stevens adds that “a multitude of factors” affect the UK property market.

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Investing in UK property needn’t be hindered by high inflation


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