Article Summary

Investors worldwide have become unsure about property investment amidst the uncertainty of the financial market. Mortgage rates have risen and house prices are even expected to fall by between 5%-10% in some parts of the country.

Having said that, some areas will recover much quicker depending on supply and demand constraints, as the areas we focus on tend to be the ones where demand is high and supply is low. For these reasons, many buy-to-let landlords are wondering if they should remain in the market. 

Buy-to-let mortgage rates

Former Chancellor Kwasi Kwarteng’s mini budget negatively affected mortgage rates, as the number of products available dropped to 988 from the 1,942 products prior to the budget announcement. However, investors can feel more confident now as lenders are gradually returning to the property market, with over 1,400 different mortgage products available to choose from.

Unfortunately, the interest rates on buy-to-let mortgages have increased substantially since the beginning of the year, following the recent drop in the financial market. The average cost of a two-year fixed rate mortgage for an investment property has sharply increased from 2.94% at the start of 2022 to 6.76% at the time of writing.

Tracker mortgages, which has a rate dependant on the Bank rate, are currently better value than fixed rate mortgages, with 2 year buy-to-let deals averaging 4.42%. 

Ultimately, the mortgage market is currently in a state of flux. If someone is investing for the long term, interest rates will always fluctuate, but over 5-10 years this will balance out. If someone is investing for the long term, they shouldn’t be overly concerned on short term implications.

The effects of higher interest rates

Though it is predicted that interest rates will rise further as a recession looms, they are not expected to remain high for long.

If you are due to re-mortgage on more than one buy-to-let property in the near future, you may decide to protect your investment by opting for different mortgage terms on the properties in question. 

Potential investors may want to consider using savings to reduce the amount needed to borrow through a mortgage, if there is a possibility to qualify for a lower loan-to-value tier. This could be 10%, or even 5% more of the total value.

In the long-term, this will be beneficial as there is less to pay back, and you will be more likely to qualify for the most competitive rates that lenders provide. 

Rent prices

In contrast to the high mortgage rates, the attractive market prices of properties still present a great opportunity for investors. But with regard to rental rates, there has actually been an increase in the last year to an average of £1,051 pcm across the UK according to the latest Rental Market Report by Zoopla.

This sharp rise is due to the low supply of properties in response to the ever-growing demand for properties in the sector. As taxes have risen and regulation on properties have increased in the past few years, several buy-to-let landlords have sold their properties, therefore leaving the sector.

The result of this is there being too few properties in the private rental sector to meet the demand of people in the country. The number of available properties on the market to rent is currently around half the number of properties available over the past five years.

In addition to this, the number of people looking to rent a home is 142% higher than five years ago. The trend is expected to continue in 2023, causing a further increase in rental prices.

Essentially, when it becomes more difficult to buy a property due to interest rates rising or mortgage products being more restricted, more pressure is felt on the rental market. Often during economic difficulties rents rise, they do not fall.

Properties on the rental market are consistently being snapped up on the same day they are listed, often with 20+ enquiries.

Should you invest in a buy-to-let property?

Despite the recent rise in mortgage rates, the low market prices for property coupled with the rise in rental demand should be attractive to any potential investor. 

The common belief is that the mortgage rates will drop, and the low prices for purchasing properties will rise as the market regains stability in tandem with the economy. It is a fantastic chance for investors to see high capital growth and rental yields on their investment.

Ultimately if you are focusing on the long term, UK property is one of the more secure investments you can make globally, for multiple reasons. However, the big factor is supply and demand. The UK are simply not building enough properties to keep up and this is not going to change anytime soon, and it is more obvious in certain cities such as Manchester, Leeds and Brighton.

If you are waiting for the best time to buy you are assuming two things;

1. There is a right time to buy.
2. You will know when that time is.

Nobody knows either of those, but what we do know is property has a track record of coming through in the long term. It is a great hedge against inflation and a great way to see consistent cashflow.

Contact us

To learn about current property investment opportunities in Manchester, or to find out more about how property investment works, get in touch with the experts at North Property Group today.