The 2022 Cost of Living Crisis: Impact on the Property Market

By Kate Faulkner

Property Market Analyst and Commentator

When the property market reopened in May 2020 following the first lockdown, most people were surprised that instead of falling as had been predicted, property prices rocketed – and they’ve continued to rise. Typically, when the economy suffers and times are uncertain, house prices dip, so this sudden boom was entirely unexpected.

However, with interest and mortgage rates rising and the UK suffering one of the worst cost of living crises since the 1950s, could the property market be negatively impacted this year?

To answer this question, there are several things we have to understand about what’s happened to property prices during the pandemic.

Look beyond the headlines

Firstly, it’s important to know that the widely-reported ‘double-digit price rises’ haven’t happened everywhere or for every buyer and property. The most useful information for buyers and sellers is what’s happening to individual property prices on individual roads, at the time you’re looking to buy or sell.

For example, in London, some property prices went into reverse during the pandemic, with a number of flats selling for less money in 2021 than they sold for in 2016 and some houses changing hands for less than their purchase price back in 2012.

In Aberdeenshire, although the market is now slowly recovering, both property prices and rents have been falling for some years, chiefly due to the impact of falling oil prices on the local economy. Today, the average price for a property is £198,880 – that’s lower than eight years ago (2014), when the average price was £202,570. And during the pandemic, in September 2020, the average price fell to a seven-year low of £174,996. (Source: Land Registry).

Secondly, many of the property price indices claiming double-digit growth are incorrect and exaggerate the true level of price rises. This is because during the pandemic the mix of homes for sale shifted heavily towards houses and away from flats. As houses are more expensive, this led to a ‘skewing’ of the data and reports of higher average growth than was actually taking place.

One index that does take this weighting into account is Zoopla. Although the latest report shows double-digit growth for Liverpool of 10.3%, the average increase across the UK is 8.1%, with Edinburgh rising by just 4.6%, Cambridge 5.7% and Newcastle 5.4%. (Source: Zoopla).

If you’re looking to buy, sell or re-mortgage this year, ignore the headline property price averages. Look on the property portals to see what similar properties in the area have sold for recently, and then talk to your local agents about what they’re selling for today.

How could the cost-of-living crisis impact on the property market?

In the past, we’ve seen the market start to fall as a consequence of economic downturns. Even the Iraq war put the property market on hold for some months. However, neither of these types of factors has held the property market back over the last few years.

Based on the current information and data, even with the cost of living crisis, it’s hard to see why prices would stop rising this year - let alone go into reverse, unless another unexpected shock hits us.

Current forecasts for the property market range from growth of 3.5% to 5%. Forecasters aren’t expecting interest rate rises to have much of an impact because, while the increase from 0.1% in November 2021 to the current 0.75% may seem huge, this change is relatively small for those of us that remember rates of 6%-7% or higher in the 1990s. (Sources: Savills, Knight Frank, Hamptons and PwC)

According to a Which? article from October, mortgage rates were at recorded at a “Historic low of 0.79%” and there were “more than 100 sub-1% fixed-rate mortgages available.” Today, they report: “The very cheapest two-year fixed-rate deals are now priced above 1.75%.”
The key, though, is that these interest rate rises won’t impact most people, due to the high uptake of fixed-rate deals. Those that bought or re-mortgaged last year are likely to be protected from any rate rises for some years to come, and for those that are about to re-mortgage, even though rates are now rising from an all-time low, they may still be below the best rate available when the original mortgage was taken out.

What impact will utility bill rises have on the property market? 

The rises in utility costs have been swift and extraordinary, which has been a terrible shock for many households. But for homeowners who are able to move, the price increases may encourage them to sell their current home and move to a smaller and/or more energy efficient one.

And they may benefit from doing this. If they’ve been lucky enough to see the value of their property rise, they may have more to spend on the next one and could trade a property with a UK-average D rating on the EPC, for a new one that’s A or B rated. In addition to lowering energy costs, a better EPC rating could allow them to access preferential mortgage rates via lenders that offer ‘green’ mortgage deals for the most energy efficient properties.

Bearing in mind the Government’s aspiration that all homes will need to have an EPC rating of C in order to meet their ‘net zero’ targets, anyone moving from now on will have to take the energy efficiency of the property they buy into account.

So, the utility bill rises may well hit people’s pockets in the short term, but with decent growth in equity and the need to ensure properties are more energy efficient, this could boost movement in the housing market. At the very least, it could encourage people to make small and cost-effective changes to their home, which will be helpful not just during this current crisis, but also for the future.

What to take from this

The most important things to think about now are:

1. Are you in the right home for your circumstances, both now and into the future?

2. Can you afford rising costs, or would you be better moving somewhere where ongoing costs will be cheaper?

3. Do you have easy access to the facilities you need now and will need in the future – such as public transport and access to healthcare facilities?

It’s also sensible to make sure you’re covered for worst-case scenarios through insurance or other means. If you haven’t done so recently, this is a good time to review your finances and possible future circumstances with an independent financial advisor and mortgage broker, who can help ensure you’re properly protected against uncertainties.