Rising Inflation and Housing Costs: What It Means for the UK Property Market
Inflation in the UK surged above the Bank of England’s 2% target in October 2024, primarily driven by rising housing and energy costs. The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) rose by 2.3% over the past 12 months, up from 1.7% in September. This increase has significant implications for mortgage borrowers, property investors, and the wider housing market.
Key Drivers Behind Rising Inflation
The main factor behind the inflation rise was housing and household services, with electricity and gas prices leading the way. Energy costs have significantly impacted household budgets, increasing financial pressure on renters, homeowners, and landlords alike.
In contrast, the recreation and culture sector slightly offset inflation, but the effect was not enough to counteract the steep rise caused by housing-related expenses.
Mortgage Rates and Borrowers
This inflation spike spells tough times for mortgage borrowers. Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that the Bank of England does not expect inflation to hit its target soon. Consequently, higher rates are likely to remain a feature of mortgage pricing for the rest of 2024.
Borrowers with variable-rate mortgages or those approaching the end of fixed-rate deals face increased monthly repayments, which could strain household finances further. Prospective buyers also find themselves facing higher borrowing costs, making homeownership less accessible.
Impact on the Housing Market
Nathan Emerson, CEO of Propertymark, noted the setback this inflation rise represents, despite a year of gradual economic recovery. He emphasised the crucial role of the housing market in the UK’s economic growth.
Emerson expressed hope for stabilised inflation and a return to pre-pandemic interest rate levels, which would improve affordability for first-time buyers and those looking to move home. Lower interest rates would also encourage greater activity in the housing market, providing a much-needed boost to the sector.
Challenges for Property Investors
Rising inflation and energy costs bring challenges for landlords and property investors. Operational costs for buy-to-let properties, especially older ones with lower energy efficiency, are likely to increase.
However, this environment also presents opportunities. Investors can focus on upgrading properties with energy-efficient improvements, such as better insulation or modern heating systems. Not only can these measures reduce running costs, but they may also increase property appeal to tenants.
Platforms like Zoopla, ValPal Connect, and iamproperty offer tools and resources to help landlords manage their investments effectively. Tools such as Alto and Apex27 can further streamline property management processes during volatile times.
Outlook for 2024
As inflation remains above target, interest rates are likely to stay elevated for the foreseeable future. While this creates challenges, it also reinforces the importance of strategic property investment.
For landlords and investors, navigating this landscape requires careful planning and support. At LetsInvest, we provide tailored solutions to help you optimise your property portfolio and identify opportunities in a fluctuating market. Whether you’re a seasoned investor or just starting, our expert team is here to guide you every step of the way.
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