Predicted house price fall – a boost for BTL landlords

Analysts predict that a rise in mortgage borrowing costs might lead to a collapse of the UK real estate market, with a 15% reduction in home prices forecasted for 2023.

As Finbri, a property bridging loan specialist, comments, “The current situation is not only having an impact on house prices but also on people’s spending. 30% of consumers are spending less and our recent survey discovered that 20.19% of property investors will decrease their discretionary spending as a result of the current economic conditions.

Despite this, there is still significant interest in property investment, with 50.45% of current investors looking to invest in property in 2023. Many property experts have forecasted a 10%-15% decline in home prices next year as a result of mortgage lenders pulling agreements and increasing interest rates. This presents a robust opportunity for buy-to-let landlords to take advantage of the current market conditions and increase their portfolio.”

Why are property prices predicted to plummet?

The UK is currently experiencing significant economic turmoil that is directly impacting the property market, with three Prime Ministers in 2022 alone (so far), a cost-of-living crisis, mortgage upheaval as a result of the mini-budget that was subsequently u-turned and repossessions predicted to increase from 0.01% to over 0.06% of outstanding mortgages per quarter by end-2025.

These conditions have resulted in a perfect storm for the housing market, with prices plummeting as a direct consequence – presenting an opportunity to invest in property at below market value.

• Interest rates are increasing: The Bank of England now anticipates higher inflation, of around 13%, and experts anticipate an increase in interest rates to about 4.25% by March 2023. This is likely to put pressure on home-buyers who are already feeling the consequences of high inflation rates.
• Cost-of-living crisis: Fewer people can afford to buy homes as household budgets tighten – with a rise in food, fuel and housing costs. This is putting further pressure on household budgets whilst making it harder 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 is likely to result in a decrease in demand for property, which will put downward pressure on prices. The Bank of England announced a 0.75% hike in its base rate, from 2.25% to 3%, in October.

Nationwide have announced the following changes to their accounts from December 2022:

• Standard Mortgage Rate (SMR) will increase from 74% to 6.49%
• Base Mortgage Rate (BMR) will increase from 25% to 5%

Will the predicted prices affect buy-to-let investments?

The current market conditions have resulted in a decrease in demand for property purchases.. This reduced competition has led to a decrease in prices, making buy-to-let investments more attractive.

According to Finbri’s research, 50.45% of people are planning on investing in property in 2023 – with many seeing this as a way to safeguard their money during these uncertain times.

Are buy-to-let investments worthwhile?

Buy-to-lets have always been a popular investment with many people attracted by the potential for high returns. However, with the ongoing cost-of-living crisis, increasing inflation and property market uncertainty, it is also important to consider the risks associated with this type of investment.

• Increase in demand: The current environment of high prices and increasing mortgage rates has made it difficult for many would-be first-time buyers to get on the property ladder, helping to fuel demand for private rented housing. As a result, the yields on offer from buy-to-let investments have been attractive to many investors, particularly those looking for an alternative to low-yielding cash deposits.
• Increase in rental yields: Compared to last year, tenant demand has increased by 20%, while the overall number of rental home availability decreased by 9%. Whilst rental yields on average growing 3% a year and 40% of landlords stating they expect to increase rent should interest rates increase further, mortgage repayments need to be closely monitored to determine rental yield.

However, with the recent changes to mortgage interest tax relief, as well as the introduction of a 3% surcharge on stamp duty for second homes, buy-to-let has become less attractive as an investment proposition to some. These changes have been exacerbated by the fact that many lenders have started to withdraw their most attractive buy-to-let deals.

Despite the current economic conditions, there is still a growing interest in investing in property, with 67.92% of experienced investors looking to invest in property in 2023. This presents a fantastic opportunity for buy-to-let landlords to take advantage of the current market conditions and increase their portfolios.

Final thoughts

The predicted market conditions present a considerable opportunity for buy-to-let landlords to take advantage of the current market conditions and increase their portfolio. Despite the current economic conditions, there is still significant interest in investing in property, making buy-to-let investments an attractive option for many.

However, it is important to remember that there are risks associated with any investment, and you should always seek professional financial advice before making any decisions.