The Bank of England has warned that Britain is rapidly heading into a recession. This is usually defined as two consecutive quarters of economic decline.
“The economy faces challenges due to strong pressures on real incomes at a time of increased inflation and higher interest rates,” said an HSBC Asset Management analyst.
Impact on the property market
Although recessions can be negative on the economy and markets, back in 2020, the recession boosted property prices. Since then, the property market has been at all-time highs with buyers taking advantage of mortgages with low interest rates. Property prices have continued to rise despite recent signs of the recession, for instance from January 2022 the prices have gained an 11.8% increase.
Nevertheless, the current recession does mean that interest rates are on the rise. Interest rates have been rising as a result of inflation. Inflation in Britain rose to 9.4% in June. Inflation is therefore at its highest level in roughly 40 years. The central bank predicted that inflation would exceed 13% in the fourth quarter. To combat rising inflation, the Bank of England boosted the interest rates to 1.75%. This may deter people from taking out mortgages. This may lead to less demand in the UK property market and an easing of price growth. This however is not that big of an issue as demand is incredibly high. This can be seen with the number of new listings dropping to 40% year-to-date, while demand increased by 21%, highlighting that demand outweighs supply. Additionally, the slowing in annual house price increase has been anticipated for some time.
Off Plan developments
As real estate is a good hedge against inflation and demand is still incredibly strong in cities across the UK, the long-term benefits of investing in real estate outweigh the current uncertainty. To be able to reap the benefits of real estate investing, a good option would be to invest in an off-plan development. Off plan developments require around 20% of the property to be paid now and the rest is paid when completed. This allows the investor time for interest rates to stabilise.
Impact this will have on rents
The anticipated increase in house prices will result in higher rents. Some landlords may choose to sell the property to avoid a possible market crash as they are more likely to face rising mortgage payments leading to a rise in rents to cover all the costs.
In terms of economic struggle, there are always arising opportunities. The recession can bring some advantages to investors. If you like to know more about how to use the recession to your advantage and secure your financial future contact us as we’re here to help.