Run for the hills, the property market is about to crash!!!๐Ÿ˜ฑ Thereโ€™s a lot of doom and gloom in the media, with talk of...

Run for the hills, the property market is about to crash!!!๐Ÿ˜ฑ

Thereโ€™s a lot of doom and gloom in the media, with talk of recession, and certainly, weโ€™re seeing sustained interest rate rises. This is the first time Iโ€™ve seen in 15 years of investing, things are starting to get a little โ€œsqueaky 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.

Hereโ€™s 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 youโ€™re now only making ยฃ281 pcm after interest on your property versus ยฃ300 pcm a year ago but for that ยฃ19 pcm reduction in income youโ€™ve made ยฃ10,300 in property price growth.

Iโ€™d 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 youโ€™ve had a sticky couple of years where youโ€™ve had to ride several interest rate rises and ridden the tiger of high inflation. Whatโ€™s 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 hadnโ€™t increased over those 3 years (which happened over the past 10 years in the North East) โ€“ itโ€™d take you 600 months to make the ยฃ18k increase in property value from your rental income.

I know what Iโ€™d prefer!

Itโ€™s going to be hairy riding this interest rate tiger, but once weโ€™re through it โ€“ Iโ€™m sure weโ€™ll all be better off!


For any sales, lettings or refurb help:

  • Contact us today by phone or email to move your property to us.
  • Weโ€™ll contact your letting agent to ensure a seamless tenant transfer, including the deposit, keys and all paperwork.
  • Weโ€™ll contact your tenant to resolve any rent, maintenance or refurbishment issues you have, arranging a property visit if required.
  • Weโ€™ll begin the process of maximising your income and wealth.