How is rising inflation affecting house prices?

How is rising inflation affecting house prices? Let’s unpack it.

Several sectors of the economy have been adversely affected over the last couple of years due to the uncertainties caused by the pandemic.
But the housing market has remained reasonably healthy, with prices rising and first-time purchases staying consistent.
Some of the reasons for this sustained performance were revealed in the Autumn budget.

But with rising inflation continuing we enter 2022, how will house prices be affected over the next year?

An unprecedented year

According to data from Nationwide Building Society, the UK average house price rose to a record high of £254,822 in December 2021.
This represents an increase of over £24,000 during the 12 months from the previous year-end.
Most commenters would speculate that this level of growth is unsustainable over the next year and should cool off.
But the growth of prices during the pandemic surprised even the most optimistic predictions of many economists, so why shouldn’t it happen again?
Well, the full extent of shifting priorities of many homebuilders, from urban to rural or semi-rural for example, was unforeseen.
And with some of the tax breaks of 2021 for UK homebuyers no longer available, it’s likely easier to make more accurate predictions for this year.

Calm but optimistic

In December, up-to-date UK inflation figures showed that the cost of living had risen by more than five per cent in a year.
This represented the highest level in a decade and was way over the Bank of England’s previously stated target of two per cent.
A significant portion of this rise can be attributed to the sharp rises in gas and electricity prices.
Nevertheless, the BoE’s aims to keep the consumer prices index (which measures inflation), between one and three per cent, are falling short.
And without a corresponding rise in interest rates, it appears likely that house prices should continue to rise, albeit without the boom seen in 2021.
The most effective way to ensure value and protection against the potential of a slump is to rely on detailed research and knowledge about your preferred area.

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Our experienced staff specialise in managing realistic expectations while still securing the best value investments.
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