Inflation reaches record high, but expert explains why it won’t have significant impact on the housing market

House prices rise for 10th consecutive month, but homeowner mortgage arrears 10% lower than last year

Simon Bath, property expert and CEO of iPlace Global, the creators of Moveable, explains why the property market won’t be affected by rising interest rates yet

UK inflation skyrocketed to a 40-year high of 9% last month, as average house prices soared to £286,079 – marking a 9.9% annual increase. In an attempt to combat record inflation, the Bank of England raised interest rates to 1% earlier this month – with an expected rise to 3% by the end of the year. However, Simon Bath, property expert and CEO of property technology company, iPlace Global, explains that this may not have a compounding impact on the housing market, just yet. 

Bath explains:

“Rising inflation won’t have a significant effect on the housing market for a couple of reasons. Firstly, there isn’t enough stock – given that new-builds got delayed through the pandemic. Secondly, while we’re seeing the biggest interest rate rise for 13 years, they’re only rising by around a quarter or half a point. Actually, on a mortgage payment, we’re talking less than £100 – compared to the soaring energy and food costs, this will not be as prohibitively priced.”

As astronomical gas and electricity prices push energy bills to record levels, households across the country have been forced to cut costs in other aspects of their lives to afford these prices. Bath continues:

“Inflation will have a bigger impact on other relevancies of owning a property than it could potentially have on mortgage payments. Currently, 75% of all mortgage owners are on fixed rate mortgages, meaning that interest rates won’t affect any of these.

“First-time buyers can also start with a fixed rate; if interest rates currently stand at around 1%, lenders will often offer 2-3%. The mortgage market is way more accessible in 2022 than it was in 2007. It’s a lot more consumer led now, meaning that borrowers feel more empowered to find the best rate. Now, there are so many products ensuring that those a little bit more risk-averse have the opportunity to find borrowing power.

“I don’t think we will see a cataclysmic drop off in the property market this year. If inflation tops 10%, and we reach the Central Bank’s projected 3% interest rate, then that could start to have more of a material impact on the housing market.”