Inflation could deal a blow to housing market, warn experts


The latest monthly market report from the Home website says that only four English regions, plus Wales, show annual growth over and above the latest RPI inflation figure

Inflation could deal a double blow to the housing market, an agency expert warns. Last week it was revealed that UK inflation had soared to a 30-year high of 5.4 per cent in the year to December due to rising energy costs, strong demand for goods and services, and ongoing supply chain disruption.

Jonathan Rolande from the National Association Of Property Buyers says the situation could be a double-whammy.

Firstly, people will have a lot less in their pockets to spend. The rate at which prices are rising is at its highest since early 1992 thanks to increased food and fuel costs around the world. In the next few months energy bills could rise by another 50 per cent once the price cap is removed, he said.

Potential first time property buyers won’t feel confident about taking a new financial commitment and will adopt a ‘wait and see’ approach, starving the market of buyers, he said.

The second blow could come from the Bank of England. They have limited ways of pushing down inflation and will have to resort to increasing interest rates as a way of leaving less money in people’s pockets. If they spend less, inflation will fall, Rolande said.

He said: The trouble is that these price rises aren’t just on consumer goods that are a seen as a luxury – they are actual living expenses, many of which are simply unavoidable – who’d want to choose between food or water, heat or light? So interest rates could rise but inflation may not be curbed.

Might that lead to even higher rates? For the millions with a mortgage – or thinking about getting one – that could spell disaster. We need to watch these next three months very carefully, he said.

The latest monthly market report from the Home website says that only four English regions, plus Wales, show annual growth over and above the latest RPI inflation figure.

Home also warns that with RPI inflation, according to some analysts, heading for 10 per cent, ‘some regions are treading water while others are suffering significant price falls in real terms.’

Karen Noye, mortgage expert at business advisory service Quilter, warns: Soaring inflation could well halt continuously rising house prices. While the Bank of England opted to raise rates to 0.25 per cent in December, it is unlikely they will be able to stop there if they wish to combat the steep rise in inflation we are witnessing, so further rate rises are expected.

Noye said: Highly inflated house prices coupled with elevated mortgage rates as a result of a further hike would make buying a home all the more unaffordable and could put off prospective home buyers.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Getting Money Wise. The information provided on Getting Money Wise is intended for informational purposes only. Getting Money Wise is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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