The Effect of a Rise in Inflation on Brighton Property Prices

On 16 July, the Government announced that the UK inflation rate had increased to 3.6%. Here’s how it could affect the property market in Brighton:

Perhaps, surprisingly, house prices remain fairly solid. In the UK as a whole, they rose by 1.8% over the past year, whereas Brighton saw a 2.1% increase. Some more good news is that comparatively, they also sit above average across the South East.

However, the new inflation rate is likely to make the Bank of England increasingly cautious when it comes to reducing interest rates – and higher mortgage rates are not helping the housing market, they are slowing demand.

What does this mean for Landlords of Houses of Multiple Occupation – HMOs?

HMOs in Brighton continue to offer higher yields and this is unlikely to change with the recent rise in inflation.

However, although rising costs enable HMO landlords to justify rent increases, a rise in inflation can mean less chance of early interest rate cuts. This will have a negative effect on landlords who have a high leverage when it comes to commercial borrowing.

Landlords will need to keep a close eye on how falling interest rates and inflation trends play out. Tight financial management of their properties will be even more important until a period of growth and lower interest rates gives more stability for the UK economy.

What does this mean for Buy to Let Landlords?

In the short-term, property yields will be under pressure, the current average of 6-7% will be challenging. Landlords could be faced with cashflow difficulties and have to rely on an increase in rents to offset any increase in borrowing costs. However, the outlook for BTL landlords is likely to remain positive unless stricter lending criteria changes this.

In summary, a rise in inflation of 0.2% could cause some buyers to wait until a period of stability exists. The question is whether this is likely to be before the Chancellor’s autumn budget or by the end of 2025.

If interest rates fall and inflation stabilises, this could set the stage for renewed growth by 2026.

Written By Julian Clay, Sales Consultant