Russia & Ukraine war – how will this affect the property prices?
With drastic changes and unprecedented events taking place daily worldwide, the UK’s economy and its related markets are currently being tossed on a reasonably wild tide.
But what does this mean for landlords? What will be the impact on buy to let mortgages and rental rates?
In this article, we explore the knock-on effects of such global disruption on the stock market, interest rates, GBP and property prices – and the resulting impact on buy to let landlords.
The Stock Market
While stocks in the UK and wider Europe have recently dropped dramatically due to the ongoing crisis in Ukraine, recovery appears to be on the cards.
Hargreaves Lansdown recently reported a slight rise in numerous markets – including the Stoxx 600, which had climbed by 2.7% as of Wednesday 16th March.
The DAX saw other positive movements, with a 3.3% rise, and the CAC 40, which rose by 3.64% at the same time.
The growing possibility of success has likely bolstered this growth amid peace talks being held between Russia and Ukraine. But, of course, this also suggests that a slowing of the massive surge in oil prices may be on the cards.
While stocks and shares are likely to remain volatile throughout this period of conflict, any progress made towards peace is expected to see European markets entering the black more securely.
However, this hint of market growth may have emboldened the Federal Reserve as they consider raising interest rates.
The Financial Times reports that the Bank of England will likely introduce higher interest rates imminently – returning them to their pre-Covid levels. It is predicted that interest could rise by 25 basis points over the next year, with the Bank Rate changed to 0.75%.
The considerable increase in fuel and energy prices resulting from the Ukraine crisis has been a major contributing factor to this decision.
As a result, mortgage rates – and, indeed, the general cost of living – are likely to rise. In turn, this will see a call for wage increases to meet these costs.
Buy-to-let landlords should prepare for this mortgage hike, undoubtedly resulting in higher rental charges to the tenant.
As borrowing becomes more costly, it is possible that landlords with smaller budgets could be priced out by large property investment or development firms.
What’s more, if GBP remains weak, more overseas property investors are likely to enter the mix.
The pound continues to struggle after a major decline of 9.7% in 2020. Due to various factors – from the uncertainty of Brexit to the huge blow dealt by COVID-19 – sterling remains one of the worst-performing major global currencies.
It is worth noting that there have been some predictions regarding the pound “bouncing back” should the Bank Rate be raised by 50 basis points rather than 25 – although the latter seems more likely at present, as discussed above.
A weak pound makes UK property highly attractive for foreign investors in UK property, which may mean a rising competition for UK-based buy to lets.
The UK property market remains on an upward trajectory. As of February 2022, they were reported to have risen at their fastest rate since 2007, placing the annual price growth rate at 10.8%.
However, rising inflation – meaning costlier mortgage rates – may slow this boom considerably. It is difficult to predict what the market will do next, as much depends on the peace talks and other developments between Russia and Ukraine.
Should property prices continue to rise – along with interest and therefore mortgage rates – buy to let landlords’ overheads will increase. A knock-on effect of this would be a rental hike across the country.
Of course, different UK cities are seeing growth at different rates. For example, as of March 2022, Liverpool saw a huge year-on-year house price growth at 10.7%, London rose by just 2.8%, Edinburgh by 3.1%, and Aberdeen saw a decrease of -0.03%.
It’s clear, then, that prospective buy to let investors and auction buyers should tread carefully as they plan their next move.
As a minor note: while sanctions on Russian oligarchs, including a crackdown on Russian-owned property in London, could see a significant drop in Russian investment in the capital – and, indeed, the country as a whole – it seems unlikely to affect the wider market.
To buy or not to buy – Conclusion
We are clearly in a volatile and unpredictable period when it comes to global and local markets, with much riding on the outcome of the war in Ukraine as well as the constantly-lurking Covid-19.
Landlords should plan for significant inflation hikes – resulting in costlier mortgages and higher rent stacked up against a rising cost of living.
With a weak pound promising to attract more foreign investors, it seems as if competition will be fiercer too.
As a result, it is vital for landlords to plan their next steps with care – budgeting precisely and balancing their rates carefully to avoid making a loss without pricing out already financially-stretched tenants.
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