Inflation and interest rates are slowing price growth, but government action could shift the trend
Are housing prices headed for a cool-down? Amid high inflation and rising interest rates, there are reasons to think prices could come under pressure, but much depends on the actions of the new government.
“House prices may well take a knock as demand begins to dampen,” said Melanie Spencer (pictured), business development director of Finova Connect and head of Finova Payment and Mortgage Services.
“This financial squeeze, coupled with a string of interest rate hikes, could put the brakes on what has been a surprisingly resilient housing market over the last two years,” she said.
Simon McCulloch, chief commercial and growth officer at Smoove, is expecting to see the rate of house price growth slow over the next 12 months.
“Rising inflation and mortgage rates are likely to restrict the spending power of many prospective buyers, causing market activity to cool,” he said.
He believes sellers may respond by lowering prices to meet buyers’ expectations – or by taking properties off the market in anticipation of a future upturn.
“Nevertheless, the shortage of appropriate housing supply in the UK is likely to continue to support prices, preventing severe price drops even if there is a sharp fall in demand,” he said.
All eyes on the government
Supply remains a critical issue and questions remain about whether government policy can make a difference.
“A challenging period lies ahead, and people will be looking for direction from the prime minister’s new housing minister,” Spencer said.
She suggested that the government needs to tackle the limited supply of new properties on the market, arguably one of the biggest drivers of the upwards spiral of housing prices.
“As an industry, we must keep advocating for coordinated action in this area, and part of this is ensuring that the new cabinet minister for DLUHC puts house-building firmly on the agenda,” Spencer said.
The government announced a target of 300,000 new homes being built every year in Philip Hammond’s Budget in November 2017. That target has never been met and the number of newly built properties year-on-year has been declining for decades.
A decline in supply
The possibility of a shortage in supply as people hold off on selling until the market picks up has been mooted.
However, Spencer does not see compelling reasons to expect a serous drop in the number of properties on the market.
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“Despite economic uncertainty, many borrowers may still be inclined to sell their properties due to their personal situations, such as choosing to relocate cities for a new career opportunity or needing a larger home to suit a shift in their lifestyles,” she said.
As such, she believes the role of the broker is at its utmost importance here to ensure that prospective homeowners and movers have access to the right products to achieve their property goals.