Rent rises are outstripping mortgage rate increases: Now’s the time to invest in BTL

Following rising rates in 2022, rents are forecast to increase again this year. Ongoing pressure on first-time buyers, a high demand for rented accommodation and inflation, are factors leading to a forecast increase in rental costs in the months ahead.

In the year to December, private rental prices paid by tenants in Britain increased by 4.2 percent. Experts predict that across the UK rents will rise by an average of 12.91 percent in 2023.

Since late 2021, tenants in London have endured more bigger rent increases than elsewhere in the UK. Rent has increased by 14.8 percent in the capital, growing from £1,752 a month to £2,011.

The rent hikes are partly due to increasing mortgage costs. The Bank of England’s series of interest rate rises in a bid to tackle the high level of inflation, put financial pressure on landlords. Subsequently, landlords have been forced to increase rental prices to meet mortgage demands.

While 2022 was a turbulent year for mortgages, which saw them gradually rise due to inflation, average fixed rates for both two and five-year mortgages have been falling since their peak in October following Liz Truss’s mini-Budget in September.

Most mortgage experts expect to see average mortgage rates settle between 4 and 5 percent in 2023. This is centred on the belief that inflation has peaked and subsequently the Bank of England will slow its base rate rises.

Another factor that could see mortgage rates come down is the cooling of the housing market. The higher mortgage rates we have seen in recent months, coupled with economic uncertainty, has resulted in people putting their moving or home buying plans on hold. The cooling of the market, could lower mortgage rates further, as lenders compete to attract customer.

So what do these market trends mean for buy-to-let investors?

Would-be landlords and existing landlords looking to increase their portfolios may have been putting off investing because of increasing mortgage rates. However, with demand for rental property high, mortgage rates beginning to stabilise and rental prices increasing, now could be a good time to invest in buy-to-let property.

In the current climate of uncertainty, some landlords have exited the market. As a result, tenants looking to rent have been faced with fewer homes to choose from. With demand outstripping supply, rental costs are inevitably being driven up. Consequently, brave investors can look forward to a rise in rental income at a time when mortgage rates have peaked and are stabilising and likely to come down.

Although it’s not just increasing rental costs that make the current climate attractive to BTL investors. The price of property should also be factored in.

The market upheaval of 2022 fed into house prices. According to the House price indices from both Nationwide and Halifax, house prices dropped for four consecutive months. There is also a consensus in the property industry that further falls will come in 2023. For buy-to-let investors, declining house prices offer a real opportunity. They can take advantage of lower purchasing price, not only to enjoy greater capital growth in the future, but also larger monthly yields, as mortgage costs are not so high.

All in all, the current climate of soaring rental costs, stabilising mortgage rates and high demand for rental homes with demand outstripping supply, on top of house prices falling down, presents opportunities for brave landlords to capitalise on market factors and ultimately be more profitable.

For property investors, selling properties at auction are a great way to purchase buy-to-let opportunities. Using property auctions provided by Auction House London can help limit the frustration and costs involved when buying in a property chain. It also minimises the risk of sales falling through and reduces the timescales involved, meaning investors can start earning rental income in weeks instead of months. There is also the transparency aspect to buying at auction, with investors knowing exactly how much the property and fees will cost.

Auction House London has properties listed on our auctions that would make the perfect buy-to-let investment. With a guide price of just £180,000+ (plus fees), this terraced house in Tilbury, Essex, would make a fabulous buy-to-let investment.

Likewise, this terrace in Catford, London that is situated near local shops and amenities, with a guide price of £225,000+ (plus fees) would be attractive to investors.

Interested buyers can register to bid on properties via telephone bidding, internet bidding and proxy bidding.

If you are thinking about capitalising on current market conditions, then check out the lots listed in our forthcoming auctions. Or, for any questions on buying property at auction, don’t hesitate to get in touch with our friendly team of property auction experts.