Throughout the Covid-19 pandemic, everyone across the country hoped that post-pandemic life would resume an element of normality. There was a sense of hopefulness that the potential inflation regarding the cost of living would settle down with time, but this has not been the case.

Inflation is at its highest level in 30 years, being fueled by hikes in energy bills and increasing fuel costs. Inflation sits at a whopping 9%, with the Bank of England forecasting that it will rise to 10% by the end of the year. As a result, Base Rate has increased to 1%, its highest level since February 2009.  A rise in base rate will in theory slow inflation by making the cost of debt more expensive, thereby giving consumers less disposable income to spend. However, in the short term, it will compound the cost-of-living crisis by increasing mortgage interest rates. This, combined with escalating energy costs, is putting pressure on many households.

So, what will the effect of this be on the housing market? Our founder and property expert, Deborah Richards, shares her expertise.

What will this mean for the property market?

2021 was a staggeringly strong year for the UK housing market. Throughout 2021, property sales across the UK were the highest they have been since 2007. The price of properties rose by double-digit rates, mainly caused by the huge re-evaluation of homes during the pandemic.

The rising cost of living is a worrying issue. It makes it harder to save for a deposit or to meet monthly mortgage payments. However, Base Rate is still just at 1% - a phenomenally low rate, and banks have been more conservative lenders for many years now. I do not therefore believe that the rising cost of living by itself will affect the housing market, but instead, price growth will slow to a more normal level of around 3% per annum.

Unfortunately, those who are going to be impacted are those who are on the breadline and already struggling financially. Although the rising cost of living will inevitably cut into everyone's disposable income, people will simply absorb the necessary extra costs of living by using savings that they will hope to replenish further down the line or spend less on more ‘disposable’ items.

If you have any questions about buying, selling, or letting a property, our property experts would be more than happy to help. You can contact our fabulous Maddison’s Residential team here.