How Inflation might Affect a Landlord’s Rental Business

The UK (and much of the wider world) is in the grip of enormous levels of inflation. This is the phenomenon of a widespread increase in prices. It’s something that places pressure on everyone’s living standards – though it’s particular troubling at the bottom of the economic ladder.


How is inflation measured?

There are various ways of determining the severity of inflation. The most common are the Retail Price Index, the Consumer Prices Index, and the Consumer Prices Index with Housing. Each takes a fixed list of common items and measures their cost over time. Of these, CPI tends to be the preferred option, with RPI still being used across government only for historical reasons.

How long will inflation last?

In November, inflation, as measured by the CPI, fell to 10.7%. Opinion is split as to whether the problem has peaked, with the current governor of the Bank of England, Andrew Bailey, suggesting that the worst of it is behind us.

There are several variables that could either prolong or shorten the problem. The war in Ukraine as helped to drive up the price of a range of commodities, including oil, gas and grain. Since just about everything that we buy requires fuel to transport to the shop (or to our front doors), this pushes up the price of just about everything. As such, a change in the situation in Eastern Europe might decide how rich or poor the rest of the world is in a year’s time.

Forecasting is, naturally, an imprecise art. For a sobering demonstration of this, we might look at Portolio’s prediction in April that interest rates might hit, ‘at most’, 2% next year. They’re now at 3.5%.

How does inflation affect landlords?

So, how is this relevant to landlords?

Landlords having to pay more on their buy-to-let mortgages, because of rising interest rates, means that they need to raise money by passing those additional costs to tenants, in the form of increased rents. But when the cost of everything is rising, tenants will have less money available to put towards rent. Increase rents beyond the ability of the tenant to pay, and landlords might end up creating bigger problems for themselves.

How can landlords adapt?

The result is a difficult situation, with no easy answers. Landlords might seek a variety of creative solutions to allow them to cut costs as an alternative to increasing rents. Attracting quality tenants in the first place is crucial, as is avoiding downtime where the home is unoccupied, and therefore loss-making. As a rule, it’s good idea to invest in specialised landlord insurance, in order to protect yourself against this kind of problem.

Erin Emanuel