Interest Rate Rises – Possible impact on property pricing.
Recent Interest rate rises have resulted in the first negative yield gap between borrowing costs and initial yields since the last major correction.
Over the last decade, investors have benefitted from yield compression, fuelled by mortgage availability, rising rental returns and associated capital growth.
Now, as we move into a more uncertain part of the cycle, investors will need to rely on a combination of asset management initiatives and inflationary rental growth to ensure sufficient total returns.
Some investments are inherently high yielding and will therefore be able to absorb the current interest rate rises. However, having said this, investors should always ensure that there is a sufficient gap between borrowing costs and initial yields when pricing acquisitions. High income growth should not be taken for granted, or as a given, neither should a low interest rate environment.
At Aitchison Raffety we work closely with our clients and will continuously review whether an investment is fundamentally sound and sustainable, what the risks are to the income and, as interest coverage ratios come under pressure, that there is adequate debt serviceability.
As we have seen in previous cycles, market uncertainty always provides opportunity for the savvy investor, and there’s no doubt this will be a theme going forward.
If you would like advice on your property from one of our experienced Valuation team, then please contact us on 07970 434842 or email valuations@argroup.co.uk