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105% Probability of Base Rate Increase – is now the time to invest in BTL?

105% Probability of Base Rate Increase – is now the time to invest in BTL?

With prices rising and the Russian invasion of Ukraine putting yet more upward pressure on the UK inflation rate, some landlords may be nervous about further property investments. We examine whether BTL is still a worthy investment in today's climate, a must-read for all property investors.

The Bank of England has been gradually increasing Base Rate since December in an attempt to curb inflation. The Office of National Statistics (ONS) recorded UK inflation at 5.5% for January – the highest reading since March 1992. The aftermath of COVID and rising food and energy prices still leaves many predicting that inflation could still peak at over 7%. 

However, this was all before the Russian invasion of Ukraine. Oil prices have begun a sharp incline amidst concerns over supply disruption, with talks of a coordinated global release of crude stocks as an attempt to calm the market on the rise. As of Thursday 3rd March, the cost of one barrel of Brent crude is now over $110 US dollars, with a knock-on effect on living costs that will begin to filter through – putting inflation under more pressure. 

As a result, there is now a 105% probability that Bank of England Base Rate (BBR) will increase again on the 17th of March. This comes despite the slight softening in 5-year SWAP rate increases, currently at 1.514%. 

There is also the upcoming quarterly Monetary Policy Report in May to think about. As the Monetary Policy Committee is not due to meet in April, the May meeting will reflect largely on this report and the inflation rate in that month. Therefore, if there is no increase in BBR this month, we should expect a 0.5% increase in May.  

With all of these changes occurring and the threat of more price increases, is Buy to Let still a good investment? Or should landlords just consolidate and focus on securing the best rates whilst they are still available?  

Advantages of Buy to Let as an investment.  

Investing in property with a Buy to Let can be very rewarding. Whilst the yield percentage differs regionally across the UK, you will be earning rental income off the back of your purchase. At the same time, you will be generating capital growth as your property value increases over the years. Currently, experts predict property prices to grow 13% by 2026.   

Some Buy to Let landlords are concerned about the possible loss of rental income during void periods. However, you can protect yourself against these with buy to let insurance, which helps to alleviate any risks you may be concerned about. There is also the possibility of expanding and diversifying using different property types, such as HMOs, student homes, semi-commercial, or even holiday lets. Creating income streams from different sectors of the property market mitigates the negative impact should one sector or one property type become less desirable or harder to rent, (for example, HMO’s during the Covid pandemic). 

Disadvantages of Buy to Let as an investment 

Being a landlord is a big responsibility, and comes with drawbacks as well as advantages that are just as important to be aware of. For one, your tax bill is likely to go up, potentially eating into your profits more than you expect. You should speak to a professional tax advisor to find out all of the information you need before investing.  

As a long-term investment, there is also the risk of property prices falling, which will reduce your capital. However, this risk applies to all investment strategies, and you should view any purchase as a long-term investment. You will also need to factor in the additional purchase costs like stamp duty, ongoing maintenance costs, and insurances. As we’ve mentioned, failure to have the right insurance in place could leave you at risk during any void periods of no income. Speaking to a professional and expert mortgage advisor in advance will help you factor in all of these costs and risks in advance.  

Is now the right time to invest in property?  

The most important thing is that you do all the research you can prior to investing. This involves researching the local markets to find out which types of properties are in short supply, or in high demand from tenants. Another area of research that you should carry out is the average rental yield for the area. This will help you understand if the intended purchase is a good investment and will provide the returns you expect. You can also find out the prospect of property price increases, research into local amenities, schools, transport links, local housing or infrastructure development plans, as all this will help to establish if the area you are buying in is a desirable rental market. It’s important to note, however, that positive past performance doesn’t always provide a guarantee of future growth.  

It's also important for prospective landlords to look at the rental market as a whole. It’s fair to say that the Government doesn’t have the funds to meet the demand for new builds or social housing, so rental demand should only increase. As such, with the number of properties on the market slowly decreasing, this lack of supply will help landlords’ to confidently invest in a sector with long term growth prospects.  

It is also worth noting that annual rent costs are increasing slower than housing prices, it’s getting more and more difficult for first-time buyers to get onto the property ladder, and with the Help to Buy schemes also finishing, the demand for buy to let properties is only increasing.  

So, is now the time to invest? I think there are still more reasons to be investing in property than any other asset class, even more so when considered as part of an overall investment strategy. Of course, pensions have considerably better tax advantages, stocks and shares may deliver greater returns over the longer term, bonds, gilts and other investments also have their place as part of someone’s portfolio, but in a period of economic uncertainty and volatility, property does seem to be the one constant asset class to deliver. I accept the continued rise in costs is daunting, but with rates from 1.09% for personal Buy to Lets, and Limited Company rates from 2.44%*, there is still an opportunity for landlords to access great rates and therefore generate or improve the yield on their property. As I have already mentioned, I really expect the impact of a rising base rate and increasing SWAP rates to be mirrored in mortgage rates and we will start to see these increase; whether they return to be this competitive again remains to be seen.  

Get in touch today to discuss your property investment plans with one of our expert brokers. 

*Rates as at March 2022.