Warning to agents – inflation could hurt the housing brand…
Inflation could deal a double blow to the housing market, warns an expert from the agency.
Last week it was revealed that UK inflation hit a 30-year high of 5.4% in December thanks to rising energy costs, strong demand for goods and services and to the continued disruption of the supply chain.
Jonathan Rolande of the National Association Of Property Buyers – representing quick buy companies – says the situation could be a double whammy.
“First of all, people will have a lot less to spend in their pockets. The rate at which prices are rising is at its highest since early 1992 thanks to rising food and fuel prices around the world. Over the next few months, energy bills could rise another 50% once the price cap is removed.
“Potential first-time home buyers will not feel confident about making a new financial commitment and will take a ‘wait-and-see’ approach, starving the buyer market.
“The second blow could come from the Bank of England. They have limited means of bringing inflation down and will have to resort to raising interest rates to leave less money in people’s pockets. If they spend less, inflation will go down.
“The problem is that these price increases are not just for consumer goods considered luxuries – they are real living expenses, many of which are simply unavoidable – who would like to choose between food or water, heating or light?Thus, interest rates may rise, but inflation may not be contained.
“Could this lead to even higher rates? For the millions of people who have a mortgage – or who are considering getting one – this could spell disaster. We have to watch these next three months very carefully.
The Home website’s latest monthly market report says only four English regions, plus Wales, are showing annual growth above the latest RPI inflation figure.
Home also warns that with RPI inflation – according to some analysts – heading towards 10%, “some regions are treading water while others are experiencing significant price declines in real terms.”
Karen Noye, mortgage expert at business advisory service Quilter, warns: “Soaring inflation may well halt the continued rise in property prices. While the Bank of England opted to hike rates to 0.25% in December, it is unlikely it can stop there if it wishes to combat the sharp rise in inflation we are witnessing, further rate hikes are therefore expected.
“Severely inflated house prices coupled with high mortgage rates following a further rise would make buying a home all the more unaffordable and could discourage potential buyers.”
Meanwhile, Sarah Coles, senior personal finance analyst at business advisory firm Hargreaves Lansdown, shares the interest rate concern.
“Any rise in mortgage rates would be a rise from a very low base, and there will always be some very attractive mortgage deals. However, as we have seen over the past few months of the stamp duty holiday, sometimes the idea of a change affects people’s buying decisions far more than the practical impact of the change itself.
“In September, people were rushing for a delay which, at most, would save them £2,500. So there is a risk that an interest rate hike as low as 0.5% will make people think twice before going for a more expensive property.