In the UK, inflation has risen, with the Consumer Price Index (CPI) reaching 11.1% in October 2022 – the highest level in 40 years. Inflation significantly impacts the property market, affecting everything from mortgage rates to rental prices.

Mortgage rates are one of the most significant impacts of inflation on the property market. When inflation is high, interest rates are typically raised by the Bank of England in an attempt to control it. The UK’s inflation target is generally 2%, but faced with soaring inflation, the Bank of England has responded by raising interest rates multiple times in the last 12 months. Since January, the base rate was increased to its current level of 4.25%.

As a result, homeowners have seen significant increases in their monthly mortgage repayments due to the sharp increase in interest fees against borrowers and first-time buyers facing higher rates and harder affordability tests to pass.

Inflation can also have a significant impact on rentals. As the cost of goods and services increase, landlords are raising monthly rental fees to cover their costs. Private rental prices paid by UK tenants rose by 4.7% in the 12 months to February 2023. The East Midlands saw the highest percentage change (4.9%), while the West Midlands saw the lowest (4.0%).

High inflation can also lead to a decline in the pound’s value, making it more expensive for landlords to purchase goods and services.

Expensive to buy… challenging to supply

One of the biggest challenges continuing to affect the UK property market is the supply of new homes. In recent years, the UK has struggled to build enough homes to keep up with demand, particularly in areas where prices for property, skilled labour, and materials are high.

The Department for Levelling Up, Housing & Communities granted permission to construct 287,000 units in 2022. This represented a 9% decrease from unit levels in 2021 and remains significantly below the government’s annual target of building 300,000 new homes.

Many factors contribute to the shortfall of new homes in the UK, including the need for more skilled labour, difficulties obtaining planning permission, and a lack of available land for development.

Where purchasing fails, Build to Rent provides

As a result, there has been a gradual increase in the rise of build-to-rent (BTR) properties in the UK. BTR homes provide several advantages to tenants compared to a traditional buy-to-let, often managed by a single entity providing a more consistent and high-quality lifestyle. BTR properties usually have amenities and communal spaces such as gyms and kitchens.

Institutional investors in BTR are increasingly interested in the UK property market, looking for ways to diversify their portfolios and generate long-term returns. Despite growing demand, high property prices (particularly in cities) are making home ownership aspirations out of reach for many.

According to Knight Frank’s analysis of current operational BTR stock and those under construction, the value of the market in the UK is £56 billion, up 60% from 2019’s estimations. They believe this figure has the potential to double in size by 2028, valuing the market at £102 billion.

The impact on property companies and how we can help

All these impacts have a knock-on effect on property developers and managers, who must adapt their business approach to ensure that costs are covered, and targets are still met.

For example, with the cost of goods and services increasing due to inflation, landlords are forced to raise monthly rental fees to cover these costs. However, this can lead to challenges in securing tenants who can afford rental properties with a higher price tag.

However, that’s where our property team here at Liquid can help. We support property managers and developers struggling to reach potential tenants through the delivery of tailored communications activities. We’ll help you stand out from the crowd, showcasing your management and properties’ added value to balance increased prices. We can also create hyper-targeted PR and digital campaigns to reach specific audiences, such as High Net Worth Individuals (HNWIs) or those interested in premium properties, helping generate leads and secure the right tenants for your properties.

If this sounds like something that you would like more information about or would like our support with, please get in touch with our property team on propertyinfra@weareliquid.com.