Are we due a property crash in RH20 with rising interest rates and inflation?

With interest rates on the rise and inflation at a 30-year high, we are regularly asked about whether a crash is round the corner. We think the opposite may be the case for the following reasons:

Ongoing low supply levels

Supply and demand drives prices and there is a historic lack of resale supply right now. According to May 2022 Rightmove data, the level of available properties for sale is currently down 55% compared to 2019, with the most desperate shortages being for two and three bedroom semi-detached homes.  Despite this shortage in supply, the same report sets out that property sales are up 12% over the same time period, squeezing the market. 

Interest rates

Interest rates are going up, but they also went up in the noughties and nineties at times of house price inflation. Interest rates are well below average wage inflation of 5.4%, which is supportive of prices and rents are well as mortgage interest rates.

Historic UK Interest Rate Chart

 

Inflation

Whilst the cost of living is increasing, property tends to perform well in inflationary times as people look to invest in things that hold their value. We are also seeing change of spending habits, so whilst energy bills and food take up more of our income, our initial reduction in expenditure is on the vast arrays of takeaways and one-off purchases that were made in lockdown.

Savings

The UK tucked away a record amount of savings during lockdown and there is still more money in savings than historical averages to aid property purchases. We know that both interest rates and inflation will continue to rise but means ‘money is cheap’ so encouraging for those looking to invest in things that hold their value i.e. ‘property’.

Demographics

As we see the growth in people reaching pension age, we are starting to see more and more first- time landlords utilising pension pots to ensure predictable incomes from property and as a store of value.

Property cycle

Fred Harrison created a theory of an 18-year property cycle, which was back tested and reinforced with over 200 years of data. Research suggests we are only part way through the explosive growth phase. This model would suggest another 4 or 5 years of growth.

Paul’s prediction

I feel that there is still strength in the market, and we will shrug off rising interest rates. Ultimately, the best time to buy is when it feels like the right time for you to move. To keep track of your property valuation in 2022, use our free online valution tool, or book a no-obligation valuation with one of our friendly team.

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