What effect, if any, will the war in Ukraine have on the UK property market? - Opulent Invest

What effect, if any, will the war in Ukraine have on the UK property market?.

What effect, if any, will the war in Ukraine have on the UK property market?.

March 30, 2022

The ongoing war in Ukraine is already having economic repercussions around the world, and it is likely that the full extent of these will only become apparent in the future. However, we can already see the consequences unfolding in some areas, including inflation and interest rates.

This will inevitably affect the UK property market, and many people are beginning to ask what they can expect from property prices and rents in the future as they look for security and stability.

Inflation and cost of living

The most obvious and immediate impact of the Ukraine war is that several major European energy sources have been jeopardised. This has led to increased energy and fuel costs which are the basis of the rising cost of living.

Growing costs in all areas are squeezing households more than ever before, and it has been predicted that the financial impact could become worse before it gets better. Indeed, inflation hit 6.2% in February 2022 – a 30-year high.

Tom Bill, head of UK residential research at Knight Frank, said: “The most immediate impact is likely to be increased inflationary pressures at a time when the cost-of-living squeeze is pushing up fuel and grocery bills.

“The financial pain that households are experiencing could get worse, increasing downwards pressure on house prices. While it is a mathematical inevitability that inflation will start to fall later this year, the risk that it will spike higher in the short-term has risen sharply.”

But is this negative outlook borne out by the most recent house prices?

Record house prices

Against this backdrop, the latest reports from Rightmove show that the average house price in Britain has reached a record high of more than £354,000 as of March 2022. This follows a 1.7% rise in February and represents growth of 10.4% annually across the UK.

When looking at individual regions, all apart from London saw average annual growth of at least 10%, reflective of the Capital’s overheated housing market and the number of people leaving for more affordable and popular destinations such as Commuter Belt towns like Hayes, and other big cities like Manchester and Birmingham.

Likewise, a recent report from Halifax agrees with the above conclusions, stating that house prices are growing at their fastest rate since 2007 in defiance of the prevailing economic conditions. The bank has measured annual house price growth of 10.8%, an even higher rate than Rightmove recorded.

What keeps demand so strong?

So, we have what seems like a contradiction to consider: a cost of living crisis, made worse by the war in Ukraine, that means people have less money to spend than ever before, versus the reality of a housing market that continues to set new records.

Russell Galley, Halifax’s managing director, said: “The war in Ukraine is a human tragedy but is also likely to have effects on confidence, trade and global supply chains.”

He said soaring oil and gas prices were one immediate consequence, meaning that UK inflation would remain higher for longer, adding to the squeeze on already stretched household incomes. Meanwhile, further interest rate increases looked likely in the near term.

That argument makes sense, and it is an understandable worry for investors looking at the present and future market. However, by returning to the latest data from Rightmove, we can identify the reason that house price growth has remained resistant to larger economic concerns – and could continue to do so in the future despite fears of a downturn or cooling of the market.

The foundational fact of the UK property market which drives everything else is the gap between supply and demand. Until enough new homes are built each year to meet that demand, competition will continue to increase and that will naturally lead to house price growth. At present, the UK government estimates that the shortfall of new homes is approximately 100,000 each year.

Rightmove data shows that the chance of finding a buyer for a property on the market within the first week is higher than it has ever been at this time of year and twice as likely compared with the same period in 2019.

Tim Bannister, Rightmove’s director of property data, said: “Many of those who are selling in this record-breaking market obviously also face the prospect of buying again in the same market, and being in fierce competition against other buyers.”

Add in the growing demand for larger and better located homes – such as properties in city centres or close to convenient transport links such as Crossrail – following the Covid-19 pandemic, and it seems unlikely that demand will slow anytime soon.

The war in Ukraine is, without doubt, a disruptive global event, and investors should be aware of rising inflation and any interest rates increases that come with it as they have the potential to impact profitability. However, at this stage indications are that the UK property market is weathering the difficulties and has the potential to continue doing so.

If you would like to learn more about the current state of the UK property market and find out about where the best places to invest in the UK are, get in touch with our team today by clicking here.

Author

Sanjit Dhanjal.

sanjit@opulentinvest.com