What do tulips, tech stocks and bitcoin have in common? In the answer, there may be a lesson for buy-to-let investors. Property has been an almost one way bet for decades in the UK. Over the past 35 years, the price of a home has increased about 6% a year, while inflation has averaged around 2 to 3%. This may not sound like a large difference, but compounding a 3 to 4% per annum real gain over decades has made homeowners and buy-to-let investors rich.

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Indeed, since the 1990s, house prices have fallen only twice (during the 1992 recession and the global financial crisis of 2008–9). And in hindsight these were great buying opportunities, a downward dip on an ever-rising trend. But the decades to come may well be very different.

In a recent speech David Miles, senior economist at the Office of Budget Responsibility, warned that the era of massive UK house price increases may be coming to an end. He cited slowing population growth, increased interest rates and the rise of working from home as key factors dampening price rises in the future. Likewise, the boss of Barclays, CS Venkatakrishnan, recently said that property owners face a huge monthly income shock from having to re-mortgage at much higher interest rates. The question is, how much higher?

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Higher inflation means higher interest rates, and the monthly inflation figures have not been falling as fast as hoped. Inflation is proving “sticky”, as economists call it (ie it’s sticking around). The Bank of England’s base rate is now expected to peak at 5.5% in the autumn, up from 5% previously.

So the days of almost free money, via extremely low interest rates, are over. That means it’s much more expensive for buy-to-let investors to borrow. And if rent can’t be increased enough to cover the increase in mortgage costs, then that’s a problem. Although few are predicting large property price falls, I’d point out that in Japan residential property prices halved between 1991 and 2009 and have barely recovered since.

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Property prices, like all investments – from 17th-century tulips to bitcoin now – can go down as well as up. Nothing is a sure bet.

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