19% inflation and 6% Bank Base Rate

Only this week, Citibank predicted that UK inflation would exceed 18% by January next year and that the Bank of England would feel compelled to increase the base rate to 6%.

How many of us are prepared for this?

Whilst some of our readers will have have vague recollections of high inflation in the 1970’s and 80’s, very few will have been running a rental property business. It was the era of National Strikes, Power Cuts and mass unemployment. I was still in school until 1984!

There was no Landlord and Tenant Act back in those days. Evicting a ‘sitting tenant’ was nigh on impossible. However, whether you worshiped or despised her, good old Maggie Thatcher was responsible for sorting that mess out.  I often wonder, if she was still alive today, what she would be saying about the abolition of Section 21 notices, the Section 24 restrictions on finance cost relief, Selective Licensing and all the red tape created to persecute landlords since her reign of power? Sadly, all the signs point to us heading back to the misery of that period in history before Number 10 became Maggie’s Den.

I have to admit, I’m terrified yet excited at the same time. I’m terrified because I have little to no experience of running a business in a high inflation environment. I have a bit of experience of high interest rates, they peaked at 15% in the late 1990’s, but that was relatively short lived. It left a huge scar for me though, so I’ve always maintained a strategy to deal with a similar scenario if it ever happens again. I documented that strategy back in 2010, which was back in the days when I still had hair LOL 🙂 You can still read that series of articles to this day, right here on Property118 via this link.

One of the reasons I’m excited is that the difference between a 6% base rate and 19% inflation is a margin of 13% to tap into. Quite how I’m less certain about. However, one thing we do know from history is that that the price of average properties double much quicker in times of high inflation.

The chart below uses the Nationwide House Price index to plot average property prices over  70 years. The red dots indicate the time it took for property values to double. As you will see, they are much closer together during periods of high inflation and much further apart in periods of low inflation, which is pretty much the period during I’ve been building my property rental business.

There will doubtless be many new property investment business models and it will be interesting to see them evolve. Perhaps a few old chestnuts will be resurrected too? One thing I’m quite certain about is that ‘Property Educators’ will be milking this as a ‘once in a lifetime opportunity’ to ‘Get Rich Quick’ off the back of the Purchase Lease Option model, and they might be right. A variation on that theme, where I actually pay sensible money for a Purchase Lease Option with a fixed rent and permission to sublet for say seven years has certainly crossed my mind. The devil will be in the detail of course, and I haven’t quite got that worked out yet. When I do I will be happy to share it, but not before I’ve filled my boots of course. I’d be foolish to create my own competition wouldn’t I? One thing I can promise you is this; I will not be selling ‘the secrets of a Get Rich Quick scheme’ to anybody. If I do go down this path, and if it works, I will share my strategy right here on Property118 for free, just as I have always done. You can hold me to that!

Share This Article