News & insights

News: 28 June 2022

Will the cost of living crisis curb the post pandemic property boom?

While the latest House Price Index from the Land Registry shows the property market is still flying high above the rest of the economy, with inflation expected to hit an alarming 11 per cent by the end of the year, and concerns over the rising cost of living impacting consumer confidence, many experts are calling time on the property boom.

The latest Land Registry figures show UK average house prices increased by 9.8 per cent over the year to March, down from 11.3 per cent in February. London continues to be the region with the lowest annual growth at 4.8 per cent, according to the Land Registry figures.

It’s a picture backed up by mortgage lender Halifax - its latest index indicating that while house prices continued to climb in May (making it the eleventh consecutive month of increases) last month saw the slowest rate of growth since the start of the year. And as the price of fuel and food puts pressure on household budgets it predicted a cooling of the market.

‘Despite the very real cost of living pressures some people are experiencing, the imbalance between supply and demand for properties remains the primary reason driving the continued climb in house prices,’ Russell Galley, managing director at Halifax said.

‘However, the housing market has begun to show signs of cooling,’ he added.

‘Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it's likely activity will start to slow.’

In April it was announced that inflation has reached nine per cent - its highest level in 40 years - and The Bank of England has warned that it will exceed 11 per cent by the autumn. Earlier this month it voted to raise interest rates by 0.25 percentage points to 1.25 per cent.

Given that the housing market has been fuelled by cheap mortgages, increases in the cost of borrowing are likely to have a very real impact on property prices. Strict affordability tests take into account standard variable rates for mortgages, and home buyers attempting to acquire a new mortgage will find they may not be able to borrow as much as they’d like.

Iain McKenzie, CEO of The Guild of Property Professionals, said: ‘There are now some signs in the property market that the growth in house prices is finally starting to slow.

We expect this cooling effect to continue into the months ahead, as the cost-of-living crisis dampens buyers’ enthusiasm to move due to squeezed budgets.

The announcement that inflation has reached its highest level in 40 years could also cause more people to be more cautious.’

Robert Gardner, chief economist at Nationwide, pointed out that the market’s momentum so far has continued to surprise many experts. He put this down to low levels of unemployment and a shortage of housing stock.

‘Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows, with the number of job vacancies at a record high. At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.’

Whatever the state of the property market, we would like to remind our clients that Thames Water Property Searches consistently offer a comprehensive and efficient service they can rely on at all times.

Can we help you?

Our online chat is now closed. You can contact us on 0800 009 4540 between 9am - 5pm, Monday to Friday.
Alternatively, you can send us a message using our online enquiry form.