• Inflation (and recessions) can be nerve-racking for people and their hard-earned savings and wealth.
• Yet there are six reasons which make investing in private rental properties a potentially wise investment in these changeable times.
• This article looks at how investing in Grantham property could help you ‘hedge’ against inflation and protect your savings & wealth against the possible recession.

The cost-of-living predicament is threatening many Grantham households’ budgets.

Inflation is running at 7.8%, yet the best savings rates in the market are only 2.75% (because of low Bank of England interest rates). This means that the value of people’s savings is falling fast.

To add insult to injury, the possibility of a recession on the horizon could add another nail in the coffin of people’s wealth and savings.

Looking back at the last recession (ignoring the 2020 Covid recession), the Stock Market FTSE index dropped 40.1% during the Credit Crunch (2008/9) — scarcely a soothing thought if you worry about a recession looming in the next couple of years.

A recession can have a catastrophic impact on people’s household budgets, as a weaker economy characteristically means that salaries drop, and people get made redundant. So, why do I suggest Grantham rental properties will help to protect your wealth and hedge against inflation?

𝐆𝐫𝐚𝐧𝐭𝐡𝐚𝐦 𝐫𝐞𝐧𝐭𝐚𝐥𝐬 𝐚𝐫𝐞𝐧’𝐭 𝐩𝐞𝐫𝐟𝐞𝐜𝐭, 𝐲𝐞𝐭 𝐢𝐧 𝐦𝐚𝐧𝐲 𝐰𝐚𝐲𝐬, 𝐭𝐡𝐞𝐲 𝐠𝐨 𝐚 𝐥𝐨𝐧𝐠 𝐰𝐚𝐲 𝐭𝐨 𝐡𝐞𝐥𝐩 – 𝐥𝐞𝐭 𝐦𝐞 𝐭𝐞𝐥𝐥 𝐲𝐨𝐮 𝐰𝐡𝐲.

1. One of the most significant benefits of investing in residential property is to hedge against inflation. An ‘inflation hedge’ is an investment that defends against the decreased purchasing power of your money that results from the loss of its worth/value due to inflation.

The last time the UK suffered high and persistent inflation was the 1970s.

In 1973, the average British house was worth £9,942. In 1980, that same house was worth £23,287. If the same £9,934 had been invested instead in the stock market in 1973, it would be worth £19,384 in 1980.

So how did that compare to inflation?

Neither property nor the stock market beat inflation in those seven years (as the goods and services of that £9,942 in 1973 had risen to £25,897 by 1980).

But investing in the stock market between 1973 and 1980, that stock market investor would have lost 25.2% of their investment in ‘real terms’ compared with only 10.1% for property investors.

However, there was the bonus of seven years’ worth of rent!

To give you some idea of what that would be worth in today’s figures, even if the rent didn’t go up during that time frame…

𝐓𝐡𝐞 𝐚𝐯𝐞𝐫𝐚𝐠𝐞 𝐆𝐫𝐚𝐧𝐭𝐡𝐚𝐦 𝐥𝐚𝐧𝐝𝐥𝐨𝐫𝐝 𝐰𝐢𝐥𝐥 𝐞𝐚𝐫𝐧 £𝟔𝟐,𝟑𝟐𝟖 𝐢𝐧 𝐫𝐞𝐧𝐭 𝐨𝐯𝐞𝐫 𝐬𝐞𝐯𝐞𝐧 𝐲𝐞𝐚𝐫𝐬.

2. Rental properties have repetitive, regular monthly income, whilst dividends from the stock market are dependent on their profits which, in a recession, can be hit and miss.

3. Existing Grantham landlords know that the rents their Grantham rental properties achieve don’t historically decline during recessions in the medium term.

In 2008, Grantham rents dipped by 5.2%, yet they soon bounced back a year later.

And even if average rents do go down, every tenancy’s rent is fixed at the start of the tenancy. Also, it is infrequent for a tenant to negotiate the rent downwards mid-tenancy even if average rents did drop.

4. Property prices sometimes fall during recessions.

In the 2008 Credit Crunch recession, South Kesteven property values dropped 20.55%.

Dropping from £180,951 at the peak in September 2007 to £143,762 in July 2009 (before they started to rise again).

Yet as I stated above, the FTSE stock market dropped 40.1% with the Credit Crunch. Also in previous recessions, the FTSE Stock market dropped 36% on Black Monday before the early 1990’s recession and 55.3% in 1974

Which sort of drop would you prefer?

5. (Almost) guaranteed rental payments. Insurance can be taken out for rental payments (you can’t get that on stocks and shares). Also, the government will cover most (or all) rent when someone is made redundant and needs to apply for social security.

6. For those Grantham landlords who take a mortgage, inflation can be a benefit. The first is the effect of inflation on mortgage debt. As Grantham house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. You will receive a lower interest rate when you re-mortgage in the future because of the lower loan to-value percentage.

Also, as the equity in your Grantham rental property increases, assuming you fix your mortgage, your payments stay the same.

Finally, inflation also helps Grantham buy-to-let landlords because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.

𝐘𝐞𝐭, 𝐭𝐡𝐞𝐫𝐞 𝐚𝐫𝐞 𝐝𝐨𝐰𝐧𝐬𝐢𝐝𝐞𝐬 𝐭𝐨 𝐫𝐞𝐧𝐭𝐢𝐧𝐠.

Rent arrears can be a worry, though. However, during 2021, landlords who used a letting agent were, according to an investigation from Denton House Research, 272.5% less likely to be in arrears of two months or more.

One of the biggest reasons is the more stringent tenant referencing letting agents tend to do compared to landlords who do it themselves. At our agency, we like to reference tenants carefully for job security, stability, and any history of non-payment on rents, constantly liaising with previous rental properties to see if they were good tenants.

That is why many tenants with a poor tenancy record are attracted to properties that are not through agents, as they know most (not all) DIY landlords don’t reference their tenants as thoroughly as letting agents do. Solid referencing is not a 100% guarantee you won’t get rent arrears or have your rental property trashed, yet it will go a long way to mitigate it.

One of the things about investing in Grantham rental properties is that buy-to-let investors have more control over their returns than stock market investors do. Buy-to-let provides long-term stability and constant income to counterweight the massive swings seen in the FTSE stock market.

Something is reassuring about touching and feeling your investment – the ‘bricks and mortar’.

You must make your own decision when investing in the private rental market in Grantham. If you’d like to chat over the phone for five or ten minutes to discuss where I would be investing in the Grantham property market, don’t hesitate to drop me a message or pick up the phone.

How are you planning for the spectre of a potential recession?