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Is it possible that inflation could benefit landlords in Walsall?

Is it possible that inflation could benefit landlords in Walsall?

If the same rate of increase were to occur in the next decade, it would be comparable to the average property price in Walsall increasing from its current overall average value of £216,998 to a staggering £1,214,246 by 2032.

Inflationary pressures, such as rising prices, are impacting people across various aspects of daily life, from purchasing petrol to the weekly grocery shopping. In the buy-to-let market, landlords in Walsall are also experiencing the effects of these rising costs and prices, including significant increases in labour price inflation. Skill shortages have led to an upsurge in the cost of using all trades, further adding to the financial strain experienced by landlords.

Landlords in Walsall are grappling with various concerns, including the ability of their tenants to pay rent amidst the current cost-of-living crisis. Moreover, the increase in interest rates has resulted in higher mortgage payments for landlords, while professional fees like those charged by accountants have also gone up. Adding to these challenges, insurance rates for landlords are continuing to rise as well.

Could inflation be detrimental to landlords in Walsall?

The general consensus among economists is that inflation has negative consequences for the economy.

Volatility in prices can have a detrimental impact on both consumers and businesses, leading to hesitation in making purchasing decisions. This hesitancy can ultimately result in a stalled economy. A prime example of this can be seen in Germany in 1923, where the economy suffered from hyperinflation to such an extent that it took a carrier bag full of cash to purchase a loaf of bread.

Currently, Zimbabwe and Venezuela are grappling with annual inflation rates of 269% and 156%, respectively. These soaring inflation rates have caused these countries' economies to struggle, resulting in significant financial hardships.

Fortunately, there is no forecast for British inflation to reach the levels experienced in Zimbabwe or Venezuela.

Yet, would it surprise you if I said that inflation can actually be good news for Walsall landlords?

Over the past 50 years, the property market has experienced growth rates higher than inflation. This signifies that investing your savings in Walsall property can result in an increase in its value beyond the inflation rate, thus protecting your wealth during periods of high inflation.

Having an understanding of the current economic cycle can allow you to identify times when house prices may be lower in the short term, relative to inflation. This presents an opportunity to purchase property at a lower price and potentially generate additional long-term profits.

The current average value of a Walsall property is £234,449. However, if we go back to the autumn of 2007, the average value was £158,051, which shows a significant increase. Nevertheless, taking inflation into account may paint a different picture.

It seems that those who purchased property in 2007 have seen an increase in nominal value, but in reality, the value may have decreased when adjusted for inflation. What does this mean exactly? What is the definition of 'real terms'?

It is widely understood that £100.00 today cannot buy the same amount of goods or services that it could have purchased ten or twenty years ago. This is the result of the impact of inflation on the value of money over time.

In economic terms, 'real terms' refers to the price value that has been adjusted for inflation and is expressed in a constant currency value, reflecting the buying power relative to a different time period. For instance, a Mars bar that cost 26p in 2000 would have a 'real price' of 74p when expressed in today's prices, reflecting the current cost of a Mars bar today!

In other words, if we want to know the equivalent spending power of a certain price in the past, we have to adjust for inflation. Using the example of the £158,051 average price of a Walsall house in autumn 2007, we would need £263,280 today to buy the same amount of retail goods and services such as cars, food, Mars Bars, holidays, etc. This illustrates the concept of 'real terms'.

This implies that even if there were no house price decreases, as predicted by many, the average Walsall house prices are now lower by £28,831 in today's buying power, compared to 2007 when adjusted for inflation.


Buy-to-let mortgages provide another significant advantage of inflation for landlords. They are a common financing option for purchasing property investments. Here are some scenarios to illustrate why.

Let's consider a scenario where there is no inflation, such as in Japan over the last couple of decades. In this case, if a landlord had taken out a £200,000 interest-only buy-to-let loan 10 years ago, the loan would still have a 'real value' of £200,000 to be paid off after 10 years.

Next, consider the scenario where the same landlord obtained an interest-only buy-to-let loan of £200,000 in 2012. Over the past decade, there has been a 31.4% inflation rate, resulting in the buy-to-let mortgage having a 'real value' of just £137,200.

It's unlikely that inflation will remain in double digits for a prolonged period in the UK, as higher interest rates and a recession are likely to prevent that from happening. However, let's assume that the inflation rate for the next decade is 4% per year.

In this hypothetical situation, the 'real value' of the £200,000 buy-to-let mortgage would decrease to less than half of its initial 'real value' of £91,278.

Inflation could actually be a silver lining for landlords as it can potentially decrease the 'real value' of their buy-to-let mortgage. In other words, inflation can help shrink the amount owed on the mortgage. So, rather than being a problem for landlords, inflation could actually work in their favour.

Inflation could be the positive outcome that results from the growth in rents and other factors discussed in this article, including double-digit percentage growth.

Would love to get your thoughts. Get in touch or drop into the office for a chutney & chai.

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