Despite recent world events, the housing market in the United Kingdom remains buoyant. Even if there is a big disparity between supply and demand, property sales and house prices continue to hit record-high levels. However, with the significant growth in the cost of living and steep increases in interest rates, several financial experts predict a slower momentum in the coming months. This article will delve into the ramifications of the cost of the living crisis on the future of house prices in the United Kingdom.
Why Did House Prices Surge Over the Last Couple of Years?
While the global pandemic disrupted the financial status of most homebuyers, it led to a paradigm shift in their purchasing behavior and lifestyle choices. With several businesses and employers implementing the work-from-home setup, the number of people searching for properties with bigger outdoor spaces rapidly increased. The global health crisis doubled the buyer demand, ultimately outstripping supply and driving the house prices to go up.
Will the Rising Living Costs Temper the Housing Market Activity?
According to Rightmove, the average price of property coming to the housing market rose by 0.3%, hitting a new record for the fifth consecutive month. Buyer demand continues to thrive as it is 6% higher than last year’s figures and more than double the five-year May average pre-pandemic. The property website also noted that while sales inquiries have significantly lessened, they are still comparably higher than in previous years. The number of properties up for sale increased by 7%, compared to last year’s rate, but it is still notably lower than the pre-pandemic.
While this data clearly shows that the country’s housing market is starting to cool down, overall cost of living and house prices ultimately may not impede the market’s growth trajectory. However, the recent increase in living costs coupled with other variables such as inflation and mortgage rates can significantly affect the buying capacity of many homebuyers.
What Does the Future Hold for the Cost of Living and House Prices in the UK?
Many experts predict that house prices will continue to increase in the coming months, but the surge in living costs and interest rates might make housing less affordable. Even if unemployment in the country remains low, a high inflation rate will mean a more restricted household budget. Consumers might be more hesitant to purchase a house in the years to come, especially those on the lower end of the income spectrum. In addition, first-time homebuyers will find it more challenging to secure funding, as they would need to provide a higher deposit.
Lower demand in the market can even out the housing sales inventory, resulting in more reasonable house prices. However, if the living costs and mortgage rates continue to soar, it can cause the UK’s housing market to crash in succeeding years. It’s also possible that house prices will continue to climb, depending on how modern consumers will react to the uncertainty brought about by the recent pandemic.
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