How Inflation Can Affect Property Investment – a 7 Point Guide
In this blog post, we, at Agile Property Partners, focus on the subject of inflation and how it can affect property investment.
Firstly, it may be useful to actually define inflation.
Put simply, inflation is an increase in the price of services and goods, usually measured as an annual percentage.
Read on for our seven point guide:
1. Inflationary increases often lead to increases in property values. Property has always been regarded as one of the safest places to invest funds and, despite the recent Brexit vote, it’s worth noting that the average property price in the UK has risen from £160,319 in 2006 to £216,750 in 2016. Here in East Anglia, property prices increases have been even more pronounced.
2. Coupled with this hefty 10-year average price rise, interest rates remain at a historic low,which means the cost of borrowing money to invest in property is lower than inflation, with capital increases over time looking relatively assured.
3. In 1952, it’s worth noting, property cost on average £1891 – this has meant that house price inflation has had a negative impact on today’s first-time buyers. In may areas, they are unable to get on the property ladder – leading to increased demand for rental properties.
4. Shortage of housing supply can cause house price inflation too – particularly in sought after areas. A slight increase in demand in an area short of available housing stock can lead to vigorous house price inflation.
5. House price inflation inevitably had led to increased demand for rental properties. These can yield capital growth and rental income for landlords, with inflation and demand pushing up rental costs. It is vital though to remember that property can fall in value over time.
6. An increasing and ageing population in the UK has arguably led to this house price inflation. As people live longer, house price inflation and demand for rental and owned homes is likely to increase.
7. Inflation also impacts upon the construction industry – if inflation increases, to put it simply, the costs of bricks and mortar rises which leads to higher borrowing costs, increased house prices and higher rents.
We do hope you’ve found this guide useful. If you have any more questions about house price inflation or property investment, contact Richard or Wayne today.