Buy-To_let Inflation Affect

Inflation has a big impact on a rental investment. It affects capital growth, and drives rising rents and operating costs. The one cost it does not directly affect is interest on the mortgage loan. So as rental income rises, the portion required to cover interest on the loan falls, making the rents more profitable.

In general terms higher rates of inflation make an investment in rental property more profitable. Deflation could wipe out profits
The Bank of England is tasked with holding inflation as measured by the Consumer Prices Index (CPI) at around 2% and within the range 1% to 3%. In practice the Bank has been more worried by the prospects of it falling below 1%, than by it rising about 3%.
The consequences of prolonged deflation can be quite devastating, as shown by stagnation in the Japanese economy which apart from a brief respite in 1998 and again in 2008 has lasted for almost twenty years. It depresses growth in the domestic economy, as it makes sense to postpone purchases if they will be cheaper tomorrow.

%d bloggers like this: