inflation and rental market

Inflation: how is it affecting landlords and the property market?

We all know that inflation has soared recently. The Consumer Price Index (CPI) rose by 10.1% in the 12 months to January 2023.

For landlords and the UK property market, inflation is a two-edged sword. It will put up some costs, but these can be recouped by putting up rents and, eventually, property values will rise.

The downsides…

On the downside, there are higher maintenance and property upkeep costs. Landlords suffer from rising costs of skilled labour and higher prices for materials. These have increased by around 20% in the last two years.

According to the CPI, household servicing costs are up by 11.7% year on year. This has been caused by the impact of Covid – fewer workers means existing tradespeople can put their prices up.

Supply chain costs also increased in the wake of Brexit – goods entering the UK from abroad were delayed, resulting in additional storage and administration costs for suppliers, and these costs were passed on to consumers.

For landlords of HMO properties (Houses of Multiple Occupation), the costs of gas and electricity are often included in the rent, and this burden has shot up.

The recent rise in the cost of living has also pushed some tenants into rent arrears. With food inflation running at about 16% and the rise in energy costs, even conscientious tenants have a lot less left to pay the rent.

…and the upsides

However, just as some landlords have decided to exit the market, tenant demand has soared, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS).

More tenants chasing fewer properties is good news for landlords, as they can put up rents. These have risen annually by around 4.4% on average, but are increasing by much more in sought-after areas, especially in London.

Landlords putting up rents by the rate of inflation can increase their yield, even as mortgage rates rise. An RICS spokesman said: “Near-term expectations continue to point towards rents being pushed higher.”

Landlords paying more for mortgage finance will of course try to increase their rents to cover that increase. There is anecdotal evidence that tenants are already prepared for this and are bracing themselves for further rises.

Inflation can work for you

And of course when a landlord decides to sell, they will make a profit from rising property prices, which in the long term will only go one way – up.

A recent survey by investment company GetGround asked landlords for their thoughts. More than half (52%) expected the cost of managing their properties to rise by 25%.

But just 29% aim to reduce their property activity while inflation is high, while 33% will stay as they are. Almost a quarter (25%) said they plan to increase their portfolio.

For landlords contemplating putting up their rents, now is a good time to do so. Latest forecasts from the Office for Budget Responsibility predict inflation will fall back to 2.9% by the end of 2023.

If this happens, tenants may begin to question the basis for a higher rent bill, so it makes sense to act now.

About us

Here at Atkinson McLeod, we know our numbers. With our extensive local knowledge and long experience, we can help potential and existing landlords find the right London properties, and we offer a professional management service too. Don’t hesitate to contact us to find out more.

Inflation: how is it affecting landlords and the property market?
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Inflation: how is it affecting landlords and the property market?
how inflation affects landlords and the housing market.
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Atkinson McLeod
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