House prices always dominate the news in the UK, but recent events have made the property market even more prominent than usual. The last two years have seen runaway house price growth despite a pandemic, war in Ukraine and now a cost of living crisis and growing inflation which has caused many to ask whether the market can continue to grow.

It is against this backdrop that we must see the market and judge its health rather than simply look for new record prices every month. When looked at in the long term, the health and resilience of property is remarkable.

Many, including Savills, predicted that house prices would fall “5%-10%” when the market reopened following the first Covid lockdown. This assessment was based on the theory that people would be reluctant to spend and have less disposable income following that life-changing period. Instead, the pent-up demand was much higher than expected and the market flew out of the gates.

Today, the average asking price for UK properties is £367,501 according to Rightmove in its latest market analysis. This equates to a 2.1% monthly increase, a rise of more than 10% in the last year, and the fourth consecutive month in which prices have hit a record high. Asking prices are now £55,000 more than they were before the pandemic began.

This long-term health is backed up by figures from Halifax. The bank’s data shows further growth in April which took prices to more than 12% higher than they were a year ago.

Russell Galley, managing director at Halifax, said: “Housing transactions and mortgage approvals remain above pre-pandemic levels and the continued growth in new buyer inquiries suggests activity will remain heightened in the short term.

“For now, at least, despite the current economic uncertainty, the strong increases we’ve seen in house prices show little sign of abating.”

With the above in mind, it’s fair to wonder whether the cost of living crisis, rising inflation and continuing economic uncertainty are having any negative effect on the market at all. It seems to make perfect sense that a degree of volatility combined with people having less disposable income should have a cooling effect – so what’s going on?

As Tim Bannister, director at Rightmove, said: “People may be wondering why the housing market is seemingly running in the opposite direction to the wider economy at the moment.”

“What the data is showing us right now is that those who have the ability to do so are prioritising their home and moving, and the imbalance between supply and demand is supporting rising prices.”

This gap between supply and demand is the basis of the UK property market’s strength, as we have discussed previously. However, it is also true to say that the pent-up demand in the first phase of lockdown was never going to last forever – so where is the continued demand coming from that is keeping prices, sales figures and enquiries so high despite a predicted “cooldown”?

The latest data from Nationwide shows that mortgage approval figures reached 70,700 in March. Although this was a slight fall from the previous month, remained above the immediate pre-pandemic average of 66,700 a month.

The answer to the demand question posed above appears to lie in the large group of people who did not move immediately after the lockdowns and pandemic eased, but were instead waiting to become more comfortable with their new working patterns before taking the plunge and looking for a new home. In this way, these people are acting as a second wave of pent-up demand which remains unsatisfied, and therefore keeping pressure on the housing market higher than before the pandemic.

This might have several implications. Firstly, it could somewhat blunt the impact of the cost of living crisis on people’s willingness and ability to buy homes. One of the big lessons from the first wave of buyers following the pandemic was that the new work-from-home pattern that has become normal led to many people moving out of London and heading to other, more affordable and more desirable areas.

Without the need to commute, areas like the London Commuter Belt towns which offer better value for money and an improved lifestyle suddenly became more popular. Likewise, other cities like Birmingham and Manchester saw an increased number of new arrivals as people left the capital to make their money go further. With the cost of living crisis underway, people who work from home are likely to continue seeking this value for money, and it is possible that demand in those aforementioned areas will keep growing as a result of this.

The second major trend we saw in the first wave of post-pandemic moves was that people prioritised private space more than they had previously. Whether that means moving to a studio on their own or upgrading to a larger one-bed apartment, greater weight was put on quality of life and having the space to really live than it was previously. This was reflected in people’s decisions when it came to both buying and renting. Luxury apartments were a big beneficiary and could continue to be so as the second wave of demand hits.

The above points may provide the answer to why any ‘cooling’ of the housing market we see is unlikely to be either severe or long-term. The first wave of post-lockdown demand pushed the market to new heights, but it does not appear to have exhausted demand by any stretch of the imagination.

Consequently, while factors including the cost of living crisis, inflation and the economy may have an effect on prices, this must be viewed in the wider context. The ‘cooling’ that people are predicting or expecting is based on a market that is at a substantially higher point than at any time previously, and so any minor downturns are relative. The value of the market overall is still a lot higher than it was pre-pandemic.

For these reasons, we would advise investors to be cautious, yes, but not disheartened or put off. The underlying supply and demand issue which has defined the UK property investment market for many years remains unchanged and keeps the market buoyant. As always, buying in the right locations like those mentioned above is the paramount factor.

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