If you flick open the Financial Times or even turn on BBC news at the wrong time you’re often treated to a whole host of percentages, statistics and jargon which doesn’t really mean a great deal to the ordinary man. The economic climate, though, does really affect landlords and it’s worth brushing up on your economics if you’re looking for tenants or thinking about whether becoming a landlord is for you. So, what does it all mean?
Economic growth is the main determinant of how ‘well’ things are going. If your economy is growing then you’re making your resources work harder and go further and essentially, everyone becomes wealthier. As a landlord, economic growth usually is correlated some way with house prices and also rental prices. As people get wealthier they are prepared to spend more on property and may be able to afford higher or more luxurious lets.
Along with economic growth comes natural ‘inflation’. Defined normally as a ‘sustained rise in prices’, inflation is the term that means things are getting periodically more expensive. Prices usually rise faster than wages and therefore high inflation means people can afford less with their incomes. As a landlord, the main danger is that people’s living costs come before their rent and in extreme circumstances they may be unable to pay. Rent Guarantee Insurance is a good counter for this.
Surreal though it is, the interest rate is really the price you pay for cash; it’s the cost of money. This is really important for you if you’re looking to take out a mortgage to fund a new property and, if you’ve borrowed on a ‘variable’ mortgage the interest rate determines how much extra you’ll pay back on top of the value your loan.
An even more bizarre concept that’s often talked about is consumer (or business) confidence. The actual figures for inflation and growth are often affected by what people think the figures are and how ‘confident’ they are that the economy is strong. If people are confident they spend more and are prepared to invest in things like property. High confidence means you’ll be able to push prices up for any new tenants and they’re likely to be prepared to pay.
A basic knowledge of the workings of the economy can be invaluable as a landlord. It can help you to forecast, predict and work out just how your buy-to-let investment is performing. Keep clued up and make sure you know what matters to you.