Here we are going to review the outlook for mortgage rates and property prices. Some of the main questions from new potential clients we currently dealing with but also the raised concerns from our clients that have already purchased investments. Is it wise to sit and hold funds rather than invest this year? Will new mortgage rates ruin any scope for rental profits in 2023?

Mortgage rates

Nationwide and The Financial Times expect a softer landing for UK property prices which have forecasted a realistic average 5% fall in 2023 nationally with Central London property taking up much of the forecasted decrease, a much smaller drop than most expected. This is due to slight adjustments in mortgage rates and easing inflation on the way down, residential buyers, now expect mortgage rates from 4.7% and buy-to-let finance from around 5.7%, much lower than the 6.7% lenders have been quoting for the last 2 months leading up to the new year. The UK needed the rate increases to curb our inflation rate which has slowed across the last few weeks from 11.3% to 10.6%, we still need inflation to reduce before we see a further calming of mortgage rates, it has been a domino effect since the COVID pandemic which first impacted inflation as we have never seen before from cost of milk to fuel prices. This did have a positive impact on property values across the board with yearly appreciation rates of an average of 12% per year since the lockdown ended, of course, this can’t go on in the long term, but the reason heads of banks met with the government last quarter of 2022, thereafter, shortly followed the large increases in interest rates. Speaking with DNA financial (brokers we have used), mortgage rates will come down in 2023 however the timing heavily depends on inflation.  

Property Prices

For those property buyers in 2023 purchasing individual units well over £500,000 will feel the impact more than most. With these new rates investing at this level on a traditional Buy-To-Let will find incomes are virtually eaten up from your mortgage bill. At these higher price levels, they will feel the most impact on price re-adjustment given that they seem to make no sense for investment purposes or are now unaffordable for most of the first-time buyers’ market.

One of the biggest reasons higher-valued properties in saturated areas will be reduced is down to affordability and buyers’ common sense. 5.7% on a £500,000 property assuming you place down a 25% deposit expect a mortgage payment of £2,325 per month. Whereas if we compare a property of £150,000, you pay a monthly payment of around £650, this was all calculated on the higher 5.7% rate on repayment.

Properties of lesser value across the UK cannot be affected all that much due to the fact they are still profitable for investors and highly desirable for open-market first-time buyers. It is not all doom and gloom for property prices at the bottom end of the market £50,000 – £250,000, because good areas with strong demand are still creating stable growth of 2% growth in the last 2 months. When considering an investment property this year please research demand vs supply, this will heavily determine whether you are within the bracket of property that may be impacted or not.

Is it wise to sit and hold funds rather than invest this year?  

This will heavily depend on what you are trying to achieve, if you were planning to invest for immediate capital growth in for example Manchester city center with property prices worth over £450,000, this wouldn’t be an investment choice I would recommend at the moment especially if you are seeking finance, however, what I would recommend if you are capital driven and not all that concerned about rental returns, I would advise breaking up the £450,000 into smaller chunks (smaller mortgages) and spreading out into other areas, looking for cheaper properties within areas of regeneration will result in a much broader growth impact than all your eggs in one location.

Will new mortgage rates ruin any scope for rental profits in 2023?

If you are in the property market the same way I am personally being more income-driven, there are still multiple ways of making property work for you in 2023 and creating those healthy monthly profits It is all about being educated on the strategies for example holiday lets, serviced accommodation and student/university contracted types of property. Traditional Buy-To-Let can still make sense being income-driven for those purchasing full cash, a simple strategy of buying in cash now and taking full returns, with the idea of re-financing once rates relax.

Overview

High-end properties in heavily saturated areas will feel an impact this year, mortgage rates will eventually relax, and we must take each month at a time given all indicators point towards inflation. Once the rate eases financial markets will relax in response. Target properties in areas of regeneration, high demand, and lowish values. Serviced accommodation/Holiday letting gives the ability to offset your mortgage interest rates, bills, and other tax advantages, if you aren’t yet aware of the advantages of this model get in touch or seek advice from registered accountants. For cash buyers, look for properties with discounts or those that will create a solid high return for example within the student sector. I also do not advise sitting on funds within a bank all year since you are losing money due to inflation.

Cash buyers’ current property options we can offer & manage

• Student Studios from £45,000 – 7% Net yields

• Standard Freeholds from £36,000 – 10% Net yields

Finance buyers’ current options we can offer & manage

• Serviced accommodation from £110,000 – 11% Net yields

*Some of the options from above are rather property fully operational or brand new.

We are interested in understanding what you are looking to find or achieve this year, if you can let us know your budget plans should you be looking to invest, we can then come back to you with a few options, or we can schedule a call so we can discuss everything in more detail from your current position and what we can offer to help. if you are interested please head across to our Buy A Property page.