The UK is facing the worst cost of living crisis since the 1980s, with inflation running at the highest pace in 30 years. During the Queen’s Speech on Tuesday 10 May, a promise was made to grow the economy and ease the financial burden on households, however there was no specific bill announced aimed at tackling the cost of living.
The rising prices are just one of many obstacles facing the UK housing market. The unbalanced supply and demand level has caused the average asking price to surge to £360,101 – representing a £19,082 increase over the past three months. Alongside this, 53% of properties are selling at or over their final advertised asking price. These persistent rises have made it harder than ever to get onto the property ladder, with buyer inquiries 65% above the ‘more normal’ market of 2019. Another contributing factor is the nature of the UK’s open market – attracting not only domestic purchasers and investors looking to buy, but also inbound investors and people looking to relocate to the UK.
The continued rise of property prices, combined with rising interest rates, inflation and cost of living has caused anxiety within the property world. An ONS survey revealed that around half (53%) of adults who rent their home reported that they could not afford an unexpected expense, compared with 1 in 10 (13%) of adults who own their property outright – clearly illustrating the end impact of the cost of living on renters especially.
The average UK house price rose again in April by 1.1% – marking the 10th consecutive monthly rise, however, the rate of growth is slowing. The rise in April was lower than the 1.4% increase in March and with energy bills expected to rise again in October, it’s likely the rate of house price growth will slow by the end of 2022.
David Hannah, Group Chairman at Cornerstone Tax discusses what changes need to be made to help households with their cost of living:
“The promise to help households with their cost of living announced at The Queen’s Speech is a step in the right direction, but more needs to be done. If we look at the average UK house price, it is higher than ever before, meaning it’s more unaffordable than ever for individuals – unless wages are increased.
“If we look at what has been going on – house price growth, retail inflation, energy costs surging, that’s going to put pressure on employers to raise wages. 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. 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.
“The problem we do have is the rate of demand and supply. If builders are building and they’re over supplying, it will soften the increase and the appreciation in asset value. But, if the number of people wanting to buy houses continue to exceed the supply, then those prices are going to rise.
“We have an open market in the UK which means not only are domestic purchasers and investors looking to buy but we have inbound investors. We also have quite a number of people relocating to the UK. 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.”