Regardless of how you get your news; whether you read it scrolling through your phone, listen to the radio, or watch it on TV, you will no doubt be hearing the constant negativity around the economy. The cost of living is increasing at an alarming rate and no doubt Christmas set us all back a few (hundred) pounds. A lot of us will most likely be feeling the pinch, but what about those of us who are still looking to invest; what’s happening in the rental market? Is the new year a good time to get a buy to let?
First of all, mortgage rates are on the rise – this is true. Buy-to-let mortgage interest rates are currently sat at around 4.7% for a buy to let mortgage for a 5-year fix, according to moneyfacts.co.uk. Savills have predicted that the UK base rate will increase from 3.5% which it currently is, to 4% by the end of 2023. This gives us an indication that the mortgage rates will also be increasing for at least the next 12 months, if not longer. Of course, in an ideal world the rates would now be back below 2% as they were in 2020, but unfortunately this isn’t how the property cycle works. Having said that, we aren’t at all suggesting that now is a bad time to buy; on the contrary. Due to the fact that property prices are still on the rise, now is the best time to invest before they reach their peak. If you take into account the rent and capital gain that you would be losing out on if you were to wait a year or two for mortgage prices to drop, it’s definitely the better option to invest your money now!
Another thing to factor in is, not only are the mortgage rates increasing, but so too are the rents, so how do they balance out?
According to HomeLet Rental Index, the average UK rent increased by 10.8% between December 2021 and December 2022, to £1,175, with every region seeing annual growth. This means no matter where you’ve chosen to invest, you could see an increase in your rental income. Of course, there are better areas than others. For example, the North-West increased by 1.2% in November, London increased by 1.1% and the North-East by a smaller, yet healthy 0.6%. All of this is really positive news as it indicates a nationwide increase as opposed to regional fluctuations in the rental market.
The UK had a long-standing target of 300,000 extra homes a year; a target that they have never met. To put things into perspective, only 204,530 new homes were built in the 2021/22 financial year, according to The Office for National Statistics. Last month, government scrapped this target, causing worry amongst housing campaigners. A lot of areas nationwide are still suffering from a housing shortage and rental properties are in short supply. Especially because of the current economic climate, more and more people are in a position where they are unable to buy a property and are therefore seeking somewhere to rent. Of course, you do need to avoid buying in a saturated area, but if you do your research and get a team of property experts in your corner, you should have no problem getting a tenant and having a successful buy-to-let investment property.
