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How will rising interest rates affect property investments?

Higher interest rates and the threat of recession mean the outlook for UK house prices is becoming more uncertain by the day.

Over the past decade, UK house prices have surged higher, supported by low interest rates and easy credit conditions. However, now the Bank of England has declared war against inflation, the outlook for property values is starting to become more uncertain.  

The central bank has hiked interest rates to 1.75% from the pandemic low of 0.1%, and it looks as if further increases are on the horizon. There’s even talk of a bumper 0.75% increase when policymakers next meet in late September.  

UK house prices have risen 11.5% on an annualised basis in the year to September 2022, only slightly lower than August’s annual figure, which was 11.8%.  

On a monthly basis, house prices rose 0.4%, with the average UK house price hitting £294,260. 

Forecasts from the Bank of England suggest the economy will move into a recession later this year as rising energy prices and the cost of living crisis crimp consumer income. 

Interest rates are by far one of the most important factors in determining the future direction of house prices.  

So judging by just interest rates, the direction of travel is clear: mortgage borrowing is getting more expensive. That will certainly weigh on UK house prices. Add in the threat of a recession, and the outlook for house prices is far from clear.  

How does SPPF see things moving forward?

Even with all this doom and gloom, investing in property remains a safe haven, and one of the best assets you can invest in during times of uncertainty.

Of course, there are still potential risks with investing in property, as with any other investment. Our property experts predict there to be a potential slow down or correction within the property market, especially within more affluent areas such as London, Birmingham and Manchester where the property is most expensive.

However, SPPF is uniquely positioned in the marketplace whereby we invest in property where rent is £400-£500 PCM, with average house prices valued in the region of £80,000-£100,000. This, therefore, means that our investors are less likely to be impacted by these rising interest rates due to the structure of our portfolio.

As investors only invest in SPPF’s portfolio and don’t own the properties themselves, you are protected from these rising interest rates. This is because our property experts buy properties at a time when interest rates and house prices are at their lowest, with investors’ returns being generated from rental incomes.

If you are looking to invest in buy-to-let property without the time, stress, and hassle of being a hands-on buy-to-let landlord, request a free brochure to learn more. Otherwise, get in touch and one of our property experts would be happy to discuss your requirements.