Run for the hills, the property market is about to crash!!!๐ฑ Thereโs a lot of doom and gloom in the media, with talk of...
Run for the hills, the property market is about to crash!!!๐ฑ
Thereโs a lot of doom and gloom in the media, with talk of recession, and certainly, weโre seeing sustained interest rate rises. This is the first time Iโve seen in 15 years of investing, things are starting to get a little โsqueaky bum timeโ but ultimately we have to remember that inflation is our friend.
Inflation will increase the value of your assets and your rental income.
Hereโs a little example for you. If you bought a property last year for ยฃ100,000, with a 80% LTV buy-to-let mortgage, which you rented for ยฃ500 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 ยฃ558 and house prices have increased by 10.3% (again in the NE) so your property would be worth ยฃ110,300.
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 ยฃ200 per month in interest but now paying ยฃ277 per month (with a 1.15% interest rate increase).
Overall youโre now only making ยฃ281 pcm after interest on your property versus ยฃ300 pcm a year ago but for that ยฃ19 pcm reduction in income youโve made ยฃ10,300 in property price growth.
Iโd take a ยฃ10k gain over losing ยฃ19 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.
Year 2
Rent is now ยฃ585, Property Value is ยฃ115,815, Interest is ยฃ360 & Net Income is ยฃ225.
Year 3
Rent is now ยฃ597, Property Value is ยฃ118,131, Interest is ยฃ327 & Net Income is ยฃ270.
So youโve had a sticky couple of years where youโve had to ride several interest rate rises and ridden the tiger of high inflation. Whatโs your final position.
Your property has increased in value by ยฃ18k and your net income has fallen by ยฃ30 pcm. If house prices, interest rates and rents hadnโt increased over those 3 years (which happened over the past 10 years in the North East) โ itโd take you 600 months to make the ยฃ18k increase in property value from your rental income.
I know what Iโd prefer!
Itโs going to be hairy riding this interest rate tiger, but once weโre through it โ Iโm sure weโll all be better off!
Remember itโs our job to GENERATE YOU LONG TERM WEALTH FROM PROPERTYโฆ
For any sales, lettings or refurb help:
- Contact us today by phone or email to move your property to us.
- Weโll contact your letting agent to ensure a seamless tenant transfer, including the deposit, keys and all paperwork.
- Weโll contact your tenant to resolve any rent, maintenance or refurbishment issues you have, arranging a property visit if required.
- Weโll begin the process of maximising your income and wealth.
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