Historically, investing in property has always been a relatively sound, profitable model; as demand for housing has increased, real estate development and renting out premises have only become more lucrative. However, recent developments both globally and within the UK have meant that more and more landlords are being forced to sell their stock due to decreasing profit margins or even losses incurred by taxation or bills.
Increasing Mortgage Rates and Energy Bills
When former Chancellor, Kwasi Kwertang, announced the Conservative mini-budget back in September 2022, the effects were instantly tangible with the Bank of England interest rate increasing from 1.75% to 3.5% by the end of the year. This has meant that the average homeowner is expected to see a £3000 annual increase in their mortgage repayments every year. For many landlords paying mortgages on their rental properties, this unexpected increase combined with other contextual factors has meant that renting out properties is no longer profitable, forcing them to sell, particularly in London and the South East. This will likely become the reality for many landlords who purchased properties on fixed low-rate mortgages which will soon be coming to an end, leaving them unprepared to deal with the increase in cost.
The energy crisis has also resulted in a sharp increase in the cost of heating and powering rental properties in April 2022 household energy bills increased by an average of 54% after the energy price cap was raised. They then increased by a further 80% in October, resulting in the average household paying £2500 for their energy bill each year. For many landlords, this is yet another factor making renting out property unsustainable.
Renters Reform Bill and Energy Efficiency Regulations
New policies and regulations enforced by the UK government have also resulted in landlords shelling out more for property improvements or renovation as from 2028 all rental properties will need to provide an energy performance certificate proving that the building has a rating of category C or above. This, combined with the plans to halt all sales of new gas boilers from 2035, will mean that many landlords will have to make costly upgrades to their properties, making any profit margins even slimmer.
Unfortunately, this is having a knock-on effect on renters as well as landlords; as an increasing number of rental properties are put on the market to be snapped up by homeowners, the supply for those who are looking to rent decreases while the demand stays high. This means that it is harder to find a suitable rental property and that the cost of renting is creeping up.
Cautious Investing: The Solution?
After witnessing the stability of investment in rental properties plummet, it is understandable that current landlords or those considering building a property portfolio might be rethinking their original investment strategy. In uncertain times like these, it is no bad thing to air on the side of caution and not take unnecessary risks; Blacktower’s new Cautious Fund is available for those wanting to make a potential return on their hard-earned cash without worrying about severe volatility.
With 2022 proving to be the worst year in a century for multi-asset investors, the new Cautious Fund features more than 60% in “quality bonds”, alongside a more modest allocation to equities.
As outlined by Group Chairman, John Westwood: “This fund is designed for those with a desire to have something more risk averse. It’s lower risk, but still delivers a return and provides a viable alternative for those investors who are less willing to accept the volatility of the equity market.
“This is a potentially a great opportunity for the more cautious investor who may be closer to drawing down, or perhaps simply has a more cautious outlook on life, to pursue an investment opportunity that isn’t nearly as volatile as other options.”
If you would like to discuss a personalised investment strategy that is in line with your preferred risk profile and personal circumstances, you can arrange a no-obligation complimentary consultation with one of our experienced advisers by clicking the link below.
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This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information in this communication is correct, we are not responsible for any errors or omissions.