Skip to content

How Will Inflation and the Rising Cost of Living Affect House Prices?

Covid caused a perfect storm in the already inflated UK housing market; an exodus out of the cities, changes in work and personal circumstances, and a desire for more space brought property prices in the UK to heights never seen before. In this article, we examine the most recent data and forecasts of the market in the coming months and years in order to ask, is the UK housing market boom coming to a swift end?

Mortgage interest rates forecast 2022

A common misconception is that property prices in the UK are exclusively driven by supply and demand, while high demand is relevant, the primary factor is the rock bottom interest rates charged for mortgages. This low interest environment has made it exceedingly easy to borrow money to buy a home, but this is being brought to a swift end. The Bank of England has increased the base rate of interest several times in response to rising inflation, the effects of this on property demand are now being felt, and further increases are likely to further slow the market in the latter half of 2022 as it becomes harder and more costly to obtain a mortgage. At Gaffsy, we don’t rely on any third-party lenders when we purchase property, as a privately funded company, interest rates and cost of living will not affect our offers in the same way as a private buyer with a mortgage, regardless of the economic climate we will always make you a fair and honest offer for your property.

Cost of living crisis house prices

As rising interest rates put a dampener on what should have been a boom year for property sellers, the cost of living crisis is dealing another critical blow. The wider economy of the UK, and indeed the world, will always offer a reasonable prediction of what is to come for the UK housing market. The War in Ukraine stoking an oil and gas crisis, mass food insecurity due to delayed grain exports, and the continued effects of Covid on the world economy have all contributed to the highest increases in costs of living since the early 1980s. Put simply, ordinary people looking to purchase their first home are seeing far more of their money spent each month keeping food on the table and hot water in the boiler. As energy bills are expected to jump again in October, we will likely see this crisis further impact the housing market as 2022 draws to a close, as first time buyers wait to buy in less pressurised circumstances.

Despite the partial collapse of our economy for many months, and the loss of loved ones for thousands of families, the Covid-19 pandemic actually brought about a boom for the residential property market, there were a number of factors that caused this.

  • Demand for properties with more space: Being cooped up at home for months on end convinced many Brits that the flat with the balcony just wasn’t going to cut it. This, coupled with a move to a more work from home culture, placed a massive demand on properties further away from urban centres with outdoor space.
  • General upheaval: The sudden and total change to the way we live left thousands out of work, ended many relationships and simply made large swathes of the population want to relocate for these reasons or others. This placed unseen levels of movement and subsequent demand on the property market.
  • The Stamp Duty Holiday: The stamp duty holiday was rolled out in July 2020, then extended until 30 June 2021, to help homebuyers and to boost the UK property market during the COVID-19 pandemic. This meant that buyers completing a purchase on a property for less than £500,000 before 1 July 2021 didn’t have to pay stamp duty.

The government introduced the holiday in the hope that people would feel more confident about buying, selling and renovating, in turn supporting jobs and driving economic growth.

With the Stamp Duty Holiday having ended, there will be less of an incentive to transact on property for new buyers, equally the economic effects of a pandemic cannot be negated with measures like the stamp duty holiday, but rather delayed at best, the unfortunate reality is that the UK property market and wider economy will continue feeling the effects of Covid for many years, or even decades. As a property buying company, Gaffsy never benefitted from the Stamp Duty Holiday, we have been buying property consistently for cash throughout the pandemic and before and have not changed our approach. We are committed cash house buyers for property owners in need of a fast house sale and secure transaction.

Future of the UK property market

Despite the first quarter of 2022 being extremely strong, the cracks are beginning to show. April 2022 saw growth of 12%, down 2% on the previous month. While a slow in the market can be hard to pick up on immediately, one trustworthy data source is the performance of property auctioneers. Because major property auctioneers can sell a few hundred properties in a single day, the performance of these auctions compared to previous months can be seen as a reliable indication of the market’s strength. Between the March and May auctions, Savills saw a reduction in the percentage of properties sold of 10%, while the total money raised was roughly halved, this progressively poorer performance has been felt across the major auctioneers as 2022 has progressed, all but proving that the boom brought about by the low interest rates and Covid is on the way out.

So, what next? Short of a major catastrophe on the world stage, the decline is likely to be slow, with growth slowing through the end of 2022. The cost of living crisis, made worse by soaring energy prices related to the conflict in Ukraine, will continue to restrict buyer appetite while rising interest rates will hit the pocket of first time buyers looking for a mortgage. All this will contribute to a gradual but ultimately dramatic decrease in both the number of buyers looking for property, and the prices they are willing to pay. At Gaffsy, we have purchased properties in every economic climate imaginable, if you need a guaranteed cash offer from a confident and reliable buyer, we would love to help.

The Author

Recommended Posts

Have Any Questions About Selling Your House?

Get a Free, No Obligation Cash Offer From Us Today

Want To Sell Your House Quick Now?

Get a Free, No Obligation Cash Offer From Us Today