The Ukraine Crisis and It’s Affect On UK Property

So, first of all, the biggest, most obvious impact straight away is the effect on energy prices. Energy prices have been going up anyway over the last year or so, but the effect of the war in Ukraine, the crisis there, has really compounded this. Because obviously, a lot of energy, gas, comes from Russia and comes from the Baltic states, and with the embargoes put on Russia it means the cost of energy is massively going up. So, what does that mean? Well, the average homeowner, they're going to be paying a lot more for their energy so it's not good for them, but for us as property investors, it also has a knock-on effect in two very distinct ways.

If we have serviced accommodation or we have HMOs, where typically you, the landlord, will pay the bills, you're going to see the effect of that increase in costs. On some of my energy bills, on some of my HMOs, I've seen the cost double and that has a big impact on cash flow. Now, if you have a very profitable strategy, such as HMO, such as serviced accommodation, you can probably afford to cover that extra cost. It means less profit for us, but those bills you can offset against your rental income to reduce your tax. So, although it means less cash flow, if you've got a really good property in the first place, it's not completely disastrous

I do feel for people though, who've got properties where they're paying for the bills and they're only marginal properties, they're not making a huge amount of profit. So, what can you actually do? Well, one of the things you can do is you can potentially speak to your tenants about increasing the rent, because remember, every landlord is in the same situation. Landlords are either swallowing that cost themselves and just making less profit, or they're looking to pass that extra cost on to their tenants. You know, it's news. Everyone knows it. It's not like you're trying to pull the wool over their eyes. Everyone knows the increasing costs. So, you could pass some on in your rent. You could have a fair usage policy in your property so if they exceed a certain amount, then they start contributing. I suggest you just have a conversation with your tenants and let them know that all landlords are going to be doing this, which is probably the reality. Personally, I've not put my rents up. I'm just seeing what happens. The government is bringing in help and assistance, trying to talk about capping rates, but until this crisis in Ukraine is over I think we're going to see these high costs of fuel for the foreseeable future. So, that's the obvious effect.

The other effect for us as property investors, is the effect it has on inflation. Inflation is the cost of living and inflation is the cost of energies. So, with energy prices soaring up, this will cause even more pressure on inflation. For most people, inflation is not a good thing. It's the cost of living. If inflation is high, it means it costs more to live. If wages aren't keeping up, it means people effectively have less money in their pocket at the end of each month and end of each year. However, for us as property investors, inflation is actually a good thing, because inflation means rents go up, it means property prices go up as well, and that's why we've seen property prices consistently go up in the UK. They sometimes correct. They don't always go up. They go up and they go down. But the long-term trend in the UK is up because we have an island with a limited supply of accommodation, an increasing population, and we have inflation that causes prices over time to go up. So, as property investors, while we've borrowed money, normally on an interest only mortgage, let's say we borrow £150,00 and it's interest only, at the end of the 20-year term, we still owe that money. But at the end of 20 years, £150,000 is worth a lot less in real terms because of inflation. That £150,000 buys a lot less than it did 20 years prior to that. So, inflation is actually good for us as property investors.

Now the risk with high inflation, typically the Bank of England uses interest rates as a macroeconomic tool to control inflation. So, what that means is, they will put interest rates up to calm down the economy and thus bring inflation under control. That's what they normally do. We have seen interest rates start to creep up. So, the effect of the Ukraine crisis, fuel prices going up, that causes inflation going up, that could have a knock-on effect on us as property investors, causing higher interest rates. That's going to affect our cash flow.

There are a couple of things we can do here. We can fix our mortgage rates. We can fix it for five years. I've just secured a mortgage at 2.7% for five years. I'm pretty happy with that. I still make lots of money from my property. So, you can certainly fix your interest rates. The other thing you might want to think about doing, is if you've got properties that are on variable rates and you've got lots of equity there, maybe it might be a good time to refinance those to increase the debt. Some of my clients have actually remortgaged their properties, and because the rates are so low at the moment they've actually got onto a lower rate than they were paying, and they've had some cash out of the deal. Sometimes it actually costs them about the same amount, because they were now on a lower rate than they were before, even though they've got higher borrowing. So, looking at your properties and thinking about remortgaging, might be a really good idea to fix those interest rates in.

The other effect of the Ukraine crisis is a lot of people fleeing Ukraine. Poland is taking on lots of people. The UK got lots of criticism for being very, very slow to bring people in. I was recently on holiday and I just came back to the airport and there was a welcome desk saying, welcome to Ukraine citizens who are just arriving. It's great to see people who are fleeing this terrible situation in their home country and coming to somewhere that's welcoming them. I'm not sure how many people are going to come in. The UK government have set up this policy where they're looking for home owners who've got spare rooms in their properties to help house some of these people. So, if you've got spare rooms in your home, there's an opportunity to house them and do a bit of good to help these people out, and the government is going to pay you for that. That's a bit of a windfall income that some people are going to get for doing a really good thing in helping some of these people. I think the area of social housing, supported living, is going to be a really big boom area in the property market right now.