UK inflation has risen to 9.4% in the year to June – marking its highest rate in 40 years. It’s now become far less appealing to keep savings in the bank, with money set to be eroded away if left, and therefore it could make more sense to move funds into an investment. One astute investment seems to be the housing market, as house prices have increased at the biggest monthly rise since 2007 according to Halifax. The average price now stands at £294,845, which represents a 6.8% rise, or £18,849 since the start of the year. This means that house prices have risen every month over the last year as the supply-demand imbalance continues to be the main contributor to this.
With two years of increased demand and over-competitive bidding, buying a property now appears a daunting choice. However, there are signs that the housing market is cooling which would represent an opportunity for buyers. Data from Rightmove reveals that there has been a 24% jump in the number of prospective sellers bringing homes to the market, as estate agent appraisals have reached peak levels since January. A new study commissioned by Moveable additionally shows that 1-in-10 Brits are looking to remortgage their home in order to buy a second one – with this number rising to 1-in-5 for millennials. These findings suggest that the current shortages of housing could be further reduced by young and hungry developers deciding to invest in property adding a new wave of homes to the UK market.
Halifax also showed that there are signs of increased supply, as the number of available homes coming onto the market for sale increased by 7% compared to this time last year. Despite five consecutive interest rate rises and the increased cost of living, buyer demand for properties remains high with the rate representing more than double (+113%) the pre-pandemic five-year May average as investors are turning to the property market. This comes alongside the announcement that lenders will no longer have to check whether homeowners can afford mortgage payments at higher interest rates, as the Bank of England withdrew the affordability test. This will remove a considerable barrier for many individuals looking to buy property, but it remains to be seen whether budding investors will be attracted by this change throughout the rest of the year.
David Hannah, Group Chairman at Cornerstone Tax, discusses:
“I believe wages will rise, meaning real spending power will not actually decrease. If you borrow a hundred thousand pounds today, the fixed figure of one hundred thousand pounds doesn’t rise in line with inflation. So, in five years time that debt is probably worth half what it is today. In high inflationary times with relatively low interest rates, it makes sense to borrow and maybe to buy property. The debt is being eroded by inflation, whereas the value of the asset (the house) is actually going up in line or ahead of inflation. It’s a way to make real returns.
“Overall, I expect demand for UK housing to continue to outstrip supply – pushing price increases ahead of inflation and provided wages are increased, the affordability of housing will stay in lockstep.”
