While every media outlet is packed with attention-grabbing headlines about taxes, interest rates and inflation, it is essential to take a step back from the noise and assess what property market conditions really mean – now and in the long term.

The reality is that although higher borrowing costs and a rapidly changing tax situation do have an impact on property sales, values and investments, they are one element of a bigger picture.

We’ve analysed a range of data and statistics to put the headlines into context and show landlords why some of the media conjecture is far from reliable.

1. Property Market Booms Occur Regardless of Interest Rates

The rise in interest rates has been attributed as the cause of a possible market downturn. However, in the past, the opposite has happened!

Experienced investors use technical analysis to research trends and assess how these may be replicated, which can be useful in turbulent times. During the property boom in 2006-07 The Guardian reported that housing inflation climbed by over 10%, with a range of outcomes:

• Property sale values increased by 10.5% in 2006 from the year before.
• Sales values rose faster than at any point in the previous two years.
• UK houses were appreciating by £45 every day during 2006.

All this was despite interest rates being very similar to those we are currently experiencing.

Analysts had suggested that higher mortgage rates might cause the market to stutter. Still, an influx of immigration, higher banking bonuses in the city and relaxed lending criteria caused a wave of activity.

Higher interest rates – at present – might mean that some borrowers are reluctant to move forward until more competitive mortgage offers are back on the table. But, it by no means indicates that the property market as a whole will stop growing, and other factors can cause significant changes, irrespective of inflation.

2. Capital Appreciation in Property is All-But Impervious to Economic Trends

House prices rarely reduce – analysing Bank of England statistics from 2020 to 2021 shows that property prices dipped only once, and have since recovered multiple times over.

As a summary:

• British houses grew in value by 125% between January 2000 and May 2007.
• From there until March 2009, they dropped by 19%.
• In the years since, from March 2009 until February 2021, properties appreciated by a further 78%.
• The net capital gain from the start of the market downturn until 2021 is 45%.

As investments go, it is hard to dispute a return of 173% over 21 years, or an average profit of 8% per annum, sustained year-on-year.

It is also notable that property prices have fallen once in that same 21-year period, reflecting an area of the market that is highly sustainable, reliable and low-risk, particularly when compared to an average FTSE 100 investment return of 4.9%, according to IG.

3. House Price Inflation and General Inflation Are Two Different Measurements

Inflation is a generalised term measured by looking at average costs for baskets of goods and price trends for items such as fuel and gas. House price inflation refers to the change in the value of a property over time, but consumer inflation and property inflation do not always correspond.

The easiest way to illustrate this is to compare general inflation against house price inflation.

• In the year to June 2022, house prices grew by 7.8%, as reported by the House Price Index.
• According to the ONS, general inflation for the same period stood at 12.7% for goods and 5.2% for services.

Economists use various cost metrics to calculate annual inflation but do not include property values. Rather, the calculations include housing costs (such as insurance and utilities) and some elements of average rent, but this is heavily skewed by social housing, which you can explore further through this report by The Spectator.

The point is emphasised by the fact that on one day in 2015, the ONS reported growth in house prices of 9.6% while simultaneously declaring a drop in consumer costs.

The takeaway for landlords and property investors is that general and house price inflation represent different markers and often follow diverse trajectories.

4. Landlords Have Ongoing Opportunities to Charge Rental Price Premiums

Like all sectors, housing and rental markets experience challenges. Still, there are ample ways for landlords to appeal to long-term, high-quality tenants with expectations regarding furnishing standards, energy efficiency and running costs.

Investing in simple upgrades – many of which can be subsidised with government grants – is an excellent way to upgrade a rental property, attract excellent tenants, and charge a reasonable rent that reflects the living standards available. Today’s tenants often focus on utility costs, with concerns about gas and electricity prices at the forefront.

It is also worth remembering that government standards will change in the coming years, aligned with the Future Buildings Standard. A relatively modest expense in replacing fixtures or appliances almost at the end of their life cycle could be very profitable.

Landlords who wish to demonstrate best practice compliance with the EPC C rating requirements (being introduced in 2025) can opt for upgrades such as:

• Electric vehicle charging points
• Insulation
• Smart meters
• Eco-friendly boilers
• Solar panels

Rental properties are unique because the realisable value is not solely dictated by market conditions or supply and demand. Around two-thirds of rental properties are thought not to be energy-efficient, so getting ahead of the game and having advantageous selling points can secure a higher rental income over the long term.

This upward investment can offset periods where mortgage costs might make financing more expensive.

Rental Property Advice for Landlords in West Sussex

The housing market stands somewhat apart from general economic fluctuations because housing almost always appreciates, regardless of inflation.

With much speculation about the future of the private rental market, many landlords are concerned about whether their property portfolios will continue to return capital growth and how living costs will affect the achievable rental yields on each residence. The facts and figures explored here demonstrate that property remains a sound, stable investment even during tumultuous times. Even when there are short-term blips, property quickly recovers and maintains the steady levels of growth seen over the last few decades.

If you would like any advice about managing a rental property or portfolio or making decisions about the long-term growth of your property assets, please contact the Tod Anstee team for further guidance.