The UK’s inflation Rate has slowed more than expected to the weakest pace in 13 months, falling to 7.9 per cent. In response to this the market no longer anticipates interest rates to continue to rise.

Interest rates have risen, and the impact of this change is significant for people looking to buy Property or to relocate to a new home. Consequently, interest rates, alongside the cost of living, have been headlining the UK’s news outlets in recent months. We take a step back from the catastrophic angle being driven by the media, and look deeper into the state of the property market to outline what property investors can do to maximise the potential for returns in the current market conditions.

The rise in interest rates is not an issue that negatively affects the whole property market – it is something which mostly impacts borrowers, and largely those in the homeowner segment who rely on large loans to value mortgages. The investment segment is quite separate to this and those in this segment experience different impacts as a result of changes in the wider economy – many landlords who don’t rely on debt are witnessing growth in their portfolios.

Rent rises

First and foremost, the other side of the impact of interest rate hikes and fewer home buyers is that rents rise alongside the wider trend – with current rental rates at an all time high.

Rents across the UK have increased significantly in the last year alone, and forecasts suggest that they will increase up to 20% in the UK’s major cities in the next five years, particularly Manchester and Birmingham.* 

The supply of properties available to rent in the current market has also decreased, which means that demand for the shrunken supply is high and tenants are willing to pay the greater rent rates in order to secure a home. Investors can offset the increase in any loan repayments following the interest rate rise by increasing rents alongside the nationwide trend.

Cash is king

Another result of the recent changes in the property market is a fall in house prices. Cash buyers, who don’t require any loans or mortgages to acquire the properties, can benefit from the lower property prices without having to use the higher interest loans.

Now is a prime window for cash buyers to buy properties as a large segment of the property investor audience are mortgage buyers who may be taking a step back at this time. Here at BuyAssociation, we are seeing property investors making more selective purchases at this time, ones which will allow them to capitalise on current conditions. 

Buy now, pay later

Buying off-plan property in tier one locations, such as Manchester, Birmingham and Liverpool, is another key strategy for property investors right now. Not only does it mean that you are securing property at the earliest possible stage, and therefore at the best price, but buying off-plan is also beneficial in the current market conditions. This is because off-plan properties can typically be secured with a 20% deposit, with the rest to be paid upon completion of the site. This means that investors can hold off on applying for a mortgage until closer to the completion date of the site, which can be a few years from the initial launch date. 

By securing a unit now with a deposit and funding the rest of the purchase amount closer to the completion date, investors are securing the units at the best possible price, and are very likely to agree on a much lower mortgage rate as rates begin to settle again in the next few months and years. 

Buying off-plan also means that investors will benefit from the forecasted rent increases across the UK, and investing now in emerging locations such as Stockport, Digbeth and Birmingham’s Southside, means that investors are very likely to reap the benefits of area-wide regeneration and investment projects by the time the developments are fully complete and ready to be tenanted.

Short term lets and holiday lets 

With more and more people favouring AirBnB, booking.com, and short-stay apartment options, the UK tourism, or ‘staycation’, sector is booming. As a result, landlords who decide to STL can experience greater returns and potentially more favourable tax positions.

The huge popularity of short-stays in the UK’s most popular towns and cities, especially during a time of increased cost of living which sees UK residents choosing to stay within the country rather than travelling abroad, adds to the yield property owners can expect to generate. At a time of higher interest rates this is a very good way to hedge. 

If you are able to secure a property in a key location where, if you no longer want to let it out to short-term residents, you have the flexibility in the future to sell or rent to traditional markets then you will also leave yourself in a great position to generate good capital returns once the mortgage market eases.