Do you know what rampant inflation means for your landlords and tenants? [+podcast]

Back in October 2021, the energy price cap was being revised up by a modest hundred pounds or so, and we expected that this was going to go up again in April 2022 as the energy crisis continues. But it's not as simple as that - this price hike is taking a lot of extras with it.

Energy and its cost in our economy is inescapable. We light our buildings with it. We heat our homes with it and we power our factories with it. And it is therefore one of the contributing factors making everything fundamentally more expensive.

With gas and electricity prices going up, we are seeing inflation across the board. That's born out in food and groceries going up in price. Boxes of eggs are going up from 83 pence to 89 pence, or a pint of milk from 55 to 60 pence.

That's quite a significant price increase. The Bank of England aims for two percent inflation.

That's what it deems natural and acceptable - but, with inflation running much higher at 9.1% as of June 2022 - the highest rate for 40 years - and pushing up prices, the Bank of England has also had to take action and increase the base rate to 1.25%.

The base rate increase and property investment

Anyone that's on a tracker mortgage or variable rates - including landlords - will see their mortgage costs increase.

Landlords have seen some record low mortgage rates in recent years, and those on a fixed rate will have a bit of breathing space, but they may also be looking at a jump in price when the time comes to renew.

The Bank of England has predicted that inflation will continue to rise, at least into the spring. This all means that agents may see a slightly more muted housing market in the coming months.

Agents may wish to show the extra value they can bring to landlords by helping them review the rate they're currently paying and look into remortgaging.

Inflation and the cost of living

The base rate increase won't simply affect mortgages. It builds pressure and will feed through to car lease plans or higher purchase plans - anything with a debt component that is linked to the base rate.

Council tax is going up nationally and we're all paying more at the petrol pump to fill up our cars.

This adds to a picture of increasing household budgets. It's difficult to quantify but it means that around £2,000 per year overall is being added to the cost of the average household.

Some people struggle to heat their home, some struggle to put food on the table. Nobody would want to see an additional £2,000 taken out of their pay packet or bank account each year.

What about the new government support?

Even the government's support is more complicated than it appears on the surface. With the new energy bill rebate, everyone will get £200 credit, which will be recovered over the next five years in £40 chunks. The government is crossing its fingers that costs will go down in the coming years, hoping then that £40 will be swallowed up by the falling costs.

But let's call this for what it is - it's a fudge. If a tenant lives in a property for a year and then leaves, they'll get the £200 credit. The next tenant has to effectively pay £40 extra the following year, without having benefited from the credit.

This is the nature of the fudge - it's done at a property level, not an individual level. We'll keep an eye out for the detail as it emerges in the coming months, in case this changes.

The next question is whether landlords should pass price increases onto tenants - or, indeed, any cost savings if the tenant is paying bills inclusive. This is of course up to the landlord or agent, but tenants' budgets are already squeezed as it is, with rents at record highs.

Everyone's feeling the pinch and a balanced view on how this will affect your tenants' ability to pay rent should be taken and understanding shown. Being accessible and talking to your tenants about some of their troubles, instilling that level of trust and openness with them, is definitely key.