"According to a report from the International Energy Agency, China accounted for half of the global trade in components and made 95% of the world’s heat pump compressors in 2023. This could be particularly good news for landlords of holiday lets who are more likely to be picking up energy bills"
- Matt Kimber - Molo Finance
The world is trying desperately to navigate the damage to world trade from Donald Trump’s tariffs. As the world’s most important superpowers, the US and China, fight it out, what will the resulting trade war mean for landlords here in the UK? I think there may turn out to be some silver linings from the tariff chaos.
One benefit may come in the form of trade displacement. This is the redirection of goods to alternative markets as a result of the implementation of trade barriers. Trade displacement occurs when imports from one country replace or reduce the market share of domestic products or exports from another country.
In the current case, tariffs on US imports may well lead to foreign exporters redirecting goods to the UK at discounted rates – so called ‘dumping’. This could benefit UK landlords in a number of ways.
First, there’s a chance this could directly lower the price of furnishings, appliances, and maintenance supplies for BTL properties, boosting profits. For instance, landlords renovating properties could benefit from cheaper green energy systems.
While some heat pump manufacturers have cautioned against predicting significant price falls, Energy UK has said components for heat pumps could flood the UK market as exporters seek to avoid US tariffs and help drive down the cost as global component suppliers divert exports from America and focus on areas such as the UK that are transitioning away from gas boilers.
Major producers of parts used to make heat pumps are based in countries including China, Japan, and South Korea. All these nations have been hit with significant tariffs on US sales and are now likely to target European markets, which may drive down prices.
According to a report from the International Energy Agency, China accounted for half of the global trade in components and made 95% of the world’s heat pump compressors in 2023. This could be particularly good news for landlords of holiday lets who are more likely to be picking up energy bills.
This is just one example though. There may be others – it’s not certain what sorts of products will be dumped or when. Tom Holder of the British Retail Consortium believes electronics such as TVs made in Japan, South Korea, or China could see their way to the UK, rather than the US. Producers will still want to sell their goods, rather than having them collect dust in warehouses. Landlords decking out an HMO for young professional tenants would gain here, for instance.
Second, at a macro level, with inflation potentially reduced by cheaper imports, the Bank of England may be in a position to stimulate the economy via a cut in interest rates, lowering mortgage costs.
Anyone set to remortgage in the next six months could benefit. Financial markets are pricing in a further three cuts to the base rates – with one as soon as May, as the Bank of England seeks to limit the damage from the tariffs. Talk of the cuts to the base rate is good news for homeowners, as mortgage rates are priced based on the market outlook. Swaps are already down.
The case for a bumper cut to UK interest rates next month has grown significantly. Some economists are arguing rates should be slashed by 0.5 per cent next month to limit damage to the economy. Indeed, the former Bank of England deputy governor, Sir Charles Bean, has already said rates could be cut by 0.50 percentage points. This is a potential big win.
Third, an influx of cheaper goods could well ease the cost of living for tenants, helping arrears. By way of example, retail analyst GlobalData thinks surplus stocks in clothes made in Asia previously earmarked for the US will now be sent to the UK – they still need to be sold.
On a tangential note, the price of crude oil has been falling (from about $73 for a barrel of Brent crude to around $60 at the time of writing), leading to a drop in the price of fuel at the pumps. The major oil producers – including Saudi Arabia, UAE, Oman, and Iraq, fear a downturn in demand if economies contract due to tariffs, so are hoping to prop up demand with lower prices. Goldman Sachs is predicting Brent prices could be at $55 by December next year, which is all good for personal finances.
So, while global trade faces a storm of tariff chaos, the UK’s landlords may find some unexpected gains in the months ahead.
