How Will Record Inflation Levels Affect the UK Housing Market?

inflationIf doom and gloom are what tickle your fancy, the UK media is coming up trumps for that particularly unique predilection right now.

Of course, they are only reporting what is going on in the world, and to that end the cost of living ‘crisis’, in their words, is a source of fear and frustration for many.

Rising interest rates are hitting mortgage borrowers in the pocket, and increasing inflation – which has recently hit a 40-year high – hardly serves to help those looking to get onto the property ladder or at least clamber up to the next rung of it.

And in news that will please the doom-mongering media no end, there’s every suggestion that things will get worse before they get better – ‘astronomical’ rises in the coming months could see inflation hit 11%, which would be amongst the worst in history, and plunge the UK into a recession.

So what does it mean for the UK property market, and for who hoping to buy/sell their home in the foreseeable future?

How Does Inflation Affect Property Prices?

Let’s think about what inflation is, straight off the bat.

It’s the measure of how much everyday goods and objects cost, and generally rises and falls by minute amounts on an ongoing basis.

But when economies are on the ropes and there are major supply chain issues – as there are now due to the Russia-Ukraine conflict – inflation tends to rise exponentially. And it means that the average household simply has less money to utilise as their bills rise accordingly.

Rising inflation creates fear amongst people who are already feeling the pinch financially, and so it goes without saying that these are not ideal conditions for the UK property market.

One economic tactic that the chancellor, Nadhim Zahawi, and the Bank of England could consider in tackling inflation is to bump up interest rates. This encourages saving as opposed to spending, which in turn helps to slow down inflation.

But rising interest rates make borrowing more expensive, and so the knock-on effect is that prospective property buyers may be more reluctant to take out a mortgage – or, at least, they may lower their expectations as to the amount they can realistically afford to take on.

So you would expect a rather sharp decline in demand for UK properties, and thus prices should fall too – a situation predicted by the building society Nationwide. They are quoted as saying that ‘….higher property prices and interest rates, together with steep increases in the cost of living, mean housing has become less affordable,’ before continuing by saying that ‘we expect housing market activity to slow and the rate of house price growth to moderate in the coming quarters.’

However, the most recent data doesn’t exactly back that up….

Is Now a Good Time to Buy a House?

It really does depend on your unique circumstances.

The latest stats show that property prices continue to rise conversely to the cost of living crisis – in July, the average value of a home in the UK rose by a whopping 11%. It means that, since the start of the pandemic, the average UK home has increased in value by a monumental £55,000.

It’s news that will be met with dismay by first-time buyers, who don’t have the bricks-and-mortar of their own to sell and thus find themselves in a tremendously difficult situation.

As for those already on the property ladder, now is a good time to buy if your current home has enjoyed the full fruits of the value rise in recent years – and that the property you have targeted to buy has a price that has not exceeded the £55,000 average growth since February 2020.

A good idea is to use tools like RightMove and Zoopla to see what similar properties in the same area were selling for in 2019, adding £55,000 and seeing whether you would be in a ‘value’ buying position or not.

Is Now a Good Time to Sell My House?

Yes and no.

This is a bold statement, but you may not fetch a better price on the market for your home in the next few years as you will right now.

So, if locking in a profit is your ultimate goal, then now is a great time to sell.</p

Of course, those gains are offset by the fact that you will also have to buy at an inflated rate, but if you can find a value property to buy then you are still in a strong position.

And if you can sell now, go and live in a caravan for six months and then buy when the UK property market has inevitably crashed, you will be winning twice!