Is investing in buy-to-let property a wise choice when interest rates are high? This question is cropping up frequently in today's economic climate. Keep reading to learn why Muhib Meah (Sales Director), believes it is.

The era of extremely low-interest rates is behind us, at least for now. Recent months have witnessed consistent increases in the base rate by the Bank of England, leading mortgage borrowers to contend with higher rates than they've faced in a while.

However, despite the challenges this presents to the housing market, the core advantages of investing in UK property have remained relatively unchanged. For those willing to adopt a long-term perspective, the buy-to-let market still provides opportunities for individuals seeking to invest in real estate.

A natural consequence of elevated interest rates is the downward pressure on property prices. When borrowing becomes more expensive, the demand from potential homebuyers naturally decreases, especially considering the additional financial strains they might be experiencing, like the sustained high levels of inflation currently seen in the UK.

We can already observe the consequences of increasing interest rates on property values. According to the UK House Price Index data from the Office for National Statistics, the typical home's worth has consistently declined since last September, dropping from a peak of £292,404 to its current level of £285,009.

In this climate, potential buyers find themselves in a more advantageous position for price negotiations. Reduced competition means that sellers may be more inclined to accept lower offers than they would have considered just a few months ago. Essentially, higher interest rates may present an opportunity for a more favourable purchase price compared to when rates were low. This is backed by recent research, which reveals that 74% of estate agents report that most sales are being settled below the asking price.

It's worth noting that approximately one-third of landlords intend to divest at least one property from their portfolio, as indicated by recent statistics from the National Residential Landlords Association. These properties come with the added benefit of history in the rental market, offering potential investors a clearer understanding of achievable rental incomes compared to properties previously owner-occupied.

Purchasing new-build properties off-plan offers distinct advantages in the current market landscape. First and foremost, developers are feeling financial pressure and are likely to offer more substantial incentives for projects that are already underway or will price their developments in line with the current market conditions.

When you combine these factors with the potential for capital appreciation during the construction phase and the possibility that the interest rate environment may have returned to normal by the time the property is finished, the prospect becomes even more enticing.

In essence, investors who seize these opportunities now will enjoy the best pricing and payment options, partly due to the elevated interest rate environment we currently find ourselves in.

The decrease in demand among prospective homebuyers brings another advantage for astute investors.

As individuals planning to become first-time homeowners postpone their purchases, they are compelled to explore the rental market instead, leading to increased demand among potential tenants. This not only provides investors with a broader pool of dependable, high-quality tenants to choose from but also contributes to higher rental incomes.

There are clear indications that this shift is already underway. Recent data reveals that the average monthly rent now stands at £1,120, marking an increase of £110 per month or 10.9% compared to the same period last year.

Given the relatively stable levels of rental housing supply coupled with rising demand, rental income is expected to continue growing, even if double-digit increases may not be sustainable in the long run.

It's widely acknowledged that we are currently experiencing a period of significant inflation. Despite a slight drop in the Consumer Prices Index (CPI) inflation rate to 8.7% for the 12 months ending in April, down from its previous level of 10.1%, it remains considerably higher than the Bank of England's target of 2%.

This is noteworthy, especially given that the Bank of England has raised the base interest rate on 12 consecutive occasions, with further increases anticipated by financial markets.

Generating a meaningful return on your funds during periods of elevated inflation is challenging. Keeping your money in cash hardly yields any return, and stock markets tend to exhibit inherent volatility.

However, the scenario is somewhat more predictable in the realm of property investment. Historically, we have observed that property has consistently outperformed inflation over the decades, and the ongoing scarcity of property suggests that this trend is likely to continue into the future. The potential for capital appreciation can serve as a protective shield for the value of your investment, helping to counterbalance the impact of higher interest rates.

Lastly, it's essential to bear in mind that interest rates are transient by nature. Although they may be elevated at the time of your property purchase, there is no guarantee that they will persist at such levels for an extended period.

A time will come when interest rates begin to decline, and investors who have already made their purchases will be ideally positioned to benefit from these lower rates when refinancing their investment properties.

In reality, property investment remains an attractive proposition for investors, even when interest rates are on the rise. In fact, it's possible that higher interest rates could enhance the appeal of property as an asset, providing investors with greater opportunities to acquire well-priced properties or secure more substantial ongoing rental income.

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