The UK’s housing market is bracing for impact as inflation rates continue to rise, defying earlier expectations. Experts from Propertymark, a leading property trade body, have warned that a decrease in house prices is now inevitable.
The statement from Propertymark suggests that the persistent high inflation is a major player in the imminent drop in house prices. In December, the inflation rate unexpectedly rose from 3.9% to 4%, contrary to predictions of a decrease. This increase, influenced by rising costs in sectors like tobacco and alcohol, has broader implications for the property market.
Property Market Predictions
Nathan Emerson from Propertymark emphasised that for homes to become more affordable, inflation needs to fall significantly. He stated, “A drop in house prices is inevitable and natural when finding a balance in affordability during turbulent economic times.” Emerson highlighted the need for inflation rates to align closer to the government’s target of 2% to enable the Bank of England to consider reducing interest rates from February onwards. This reduction in interest rates is crucial for improving home affordability.
The Current State of the Housing Market
Recent statistics from the Office of National Statistics paint a concerning picture: house prices recorded their fastest annual fall since 2011 as of November 2023. The average sold price dropped by 2.1% in the 12 months leading up to November 2023, with the typical home now valued at £285,000, £6,000 less than the previous year. This trend indicates a cooling market, affected by the broader economic climate.
Industry Insights
Property insiders are preparing for a challenging period ahead. Jeremy Leaf, a North London estate agent, observed signs of improving confidence in the market, marked by increased viewings and offers. However, he cautioned, “the latest inflation figures show that we can’t take anything for granted: there is still a long way to go and it is likely to be a bumpy ride.”
Anna Clare Harper, from GreenResi, noted that softer housing prices are expected due to higher interest rates significantly impacting affordability more than house prices themselves. Frances McDonald of Savills added, “Looking ahead there are encouraging signs that buyers are gaining confidence as mortgage rates fall, but a more significant improvement in market conditions will likely come once a Bank of England base rate cut is on the horizon.”
Emerson from Propertymark also urged the government to explore options to increase housing supply to meet growing demand. Such measures could help stabilise the market and make housing more accessible to a broader segment of the population.