As Finbri, specialist in real estate bridging loans, comments: “The current situation is not only having an impact on real estate prices but also on the expenses of individuals. 30% of consumers are spending less and our recent survey revealed that 20.19% of real estate investors will reduce their discretionary spending due to current economic conditions.
Despite this, real estate investment is still attracting significant interest, with 50.45% of current investors looking to invest in real estate in 2023. Many real estate experts have predicted a 10%-15% lower house prices next year due to mortgage lenders canceling deals and rising interest rates. This represents a solid opportunity for rental owners to take advantage of current market conditions and increase their portfolio. »
Why should real estate prices fall?
The UK is currently experiencing significant economic turbulence which is having a direct impact on the property market, with three prime ministers in 2022 alone (so far), a cost of living crisis, mortgage turmoil at the sequel to the mini-budget which was then u-turned and seizures are expected to increase by 0.01% to more 0.06% of outstanding home loans per quarter by the end of 2025.
These conditions have created a perfect storm for the housing market, with prices falling as a direct result – providing an opportunity to invest in property at below market value.
- Interest rates increase: The Bank of England now expects inflation to rise by around 13%and experts predict interest rates will rise to around 4.25% by March 2023. This should put pressure on home buyers who are already feeling the pinch of high inflation rates.
- Cost of living crisis: Fewer people can afford to buy a home as household budgets tighten – with food, fuel and housing costs rising. This puts additional pressure on household budgets while making it more difficult to save.
- Mortgage rates: The number of mortgage approvals has fallen to its lowest level in four years, according to the Bank of England. This will likely lead to lower demand for real estate, which will put downward pressure on prices. The Bank of England announced a 0.75% increase in its key rate, from 2.25% to 3%, in October.
At national scale announced the following changes to their accounts as of December 2022:
- The Standard Mortgage Rate (SMR) will fall from 74% to 6.49%
- The base mortgage rate (BMR) will drop from 25% to 5%
Will the expected prices affect buy-to-let investments?
Current market conditions have resulted in lower demand for real estate purchases. This reduced competition has led to lower prices, making rental investments more attractive.
According to Finbri research, 50.45% of people plan to invest in real estate in 2023 – many see it as a way to protect their money in these uncertain times.
Are buy-to-let investments worth it?
Buy-to-lets have always been a popular investment with many people attracted by the potential for high returns. However, with the current cost of living crisis, rising inflation and uncertainty in the real estate market, it is also important to consider the risks associated with this type of investment.
- Increase in demand: The current environment of high prices and rising mortgage rates has made it difficult for many potential buyers to access the property ladder, which has helped fuel demand for private rental housing. As a result, the returns offered by buy-to-let investments have appealed to many investors, particularly those looking for an alternative to low-yielding cash deposits.
- Increase in rental yields: Compared to last year, tenant demand increased by 20%, while the total number of rental units available fell by 9%. While rental yields increase on average 3% a year and with 40% of landlords saying they expect to increase rent if interest rates rise further, mortgage repayments need to be closely monitored to determine rental yield.
However, with recent changes to mortgage interest tax relief, as well as the introduction of a 3% stamp duty surcharge for second homes, buy-to-let has become less attractive as a investment proposition for some. These changes have been exacerbated by the fact that many lenders have begun withdrawing their most attractive buy-to-let offers.
Despite the current economic conditions, there is still growing interest in investing in real estate, with 67.92% of experienced investors looking to invest in real estate in 2023. This presents a fantastic opportunity for rental property owners to take advantage of the current market. conditions and increase their portfolios.
Final Thoughts
The forecasted market conditions present a significant opportunity for rental owners to take advantage of current market conditions and increase their portfolio. Despite the current economic conditions, there is still significant interest in investing in real estate, making buy-to-let investments an attractive option for many.
However, it is important to remember that any investment involves risk and you should always seek professional financial advice before making any decision.