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Cost of living crisis unlikely to affect UK house prices

Britain is facing a cost of living crisis unlike anything else in living memory. Inflation is at a very high level and energy companies are raising prices despite making huge profits – both of which are playing major roles in squeezing the spending power of millions of households up and down the country. This situation was compounded by news this week that the energy prices are set to double again by the end of the year.

With government action non-existent and all support delayed due to the Conservative Party’s latest leadership contest, more people than ever before are looking at an uncertain future.

This situation has left many wondering about the state of the overall economy and whether its reliability should be called into question. One area that is proving to be resilient in the face of the cost of living crisis is the UK property market, and perhaps here we can see that there is some potentially good news for many people.

The latest figures from the Nationwide house price index show that annual house price growth actually increased in August to 11%, from 10.5% in July. Prices rose by 2.1% in total month-on-month when seasonal changes are taken into account, and overall prices are now 13% higher than they were in 2019 before the COVID-19 pandemic began.

Robert Gardner, Nationwide’s Chief Economist, said of the figures: “The bounce back in August is surprising because it seemed more likely that the tapering of stamp duty relief in England at the end of June would take some of the heat out of the market. Moreover, the monthly price increase was substantial – at 2.1%, it was the second largest monthly gain in 15 years.

“Lack of supply is likely to be a key factor behind August’s price increase, with estate agents reporting low numbers of properties on their books.”

With that lack of supply in mind, how might the market react as the cost of living crisis deepens? It is fair to say that the outlook is still cloudy, though the housing market’s fundamentals remain strong. Underlying demand is likely to stay strong in the near future as the basic principles of supply and demand remain in place. There are nowhere near enough homes being built to meet demand and that won’t change in the foreseeable future. Due to this, prices in the housing market are likely to retain stability and growth prospects.

Likewise, the employment market has remained resilient and this has also contributed. Employment rates are at their highest in decades (over 75%) according to figures released recently by the Office for National Statistics, and that has given more people the kind of certainty that is needed to contemplate a new property move or purchase – leading to a stronger market.

However, it is worth noting that some experts believe these conditions may ease slightly in the near term. If the cost of living crisis does cause people to cut their spending the housing market will be affected briefly and some sellers may be forced to lower prices to accommodate this reality.

Likewise, there is a danger that the crisis will have an impact on the affordability of new mortgages thanks to the growing rate of inflation. This will also potentially have a negative effect on the market which people should be wary of.

However, despite this, a potential slowdown is far from assured and is only speculation at the moment. Indeed, the past behaviour of the housing market and people buying property in the UK suggests that fears could be overblown. The aforementioned factors which are serving to increase the value of property in the UK – especially the lack of supply and the accompanying low rates of new construction – are long-term factors which are not going to be resolved. This should give confidence in the housing market through any possible tough times in the short term.

Whether we look at Brexit, the COVID-19 pandemic, increasing inflation or government uncertainty, one of the central facts of life in the UK is that the housing market has remained stable. While nothing in life is ever completely certain, the property market’s reliability is more certain than most, and that remains the case even in the face of a cost of living crisis.

Are you looking for your next property in the UK? Find out more about the market and our available buy-to-let opportunities by getting in touch with our team today. Click here to get in touch today.

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