How inflation could lower UK house prices

If you have been keeping up with the news, you will know that UK house prices seem to be growing on a daily basis. As a result, many buyers are struggling to afford a home or are putting off other big life events to save for a deposit.

Recent findings from Hargreaves Lansdown highlight just how much UK house prices rose in 2021. Luckily, Sarah Coles, the firm’s senior personal finance analyst, believes that these prices could soon start to drop.

Here’s everything you need to know about the current state of UK house prices and why they might begin to fall soon.

House prices reached an all-time high in December

The report from Hargreaves Lansdown reveals that the average UK house cost £276,091 in December 2021. This reflects a 3.5% rise in the three months to December, and it highlights just how difficult it was to get on the property ladder in 2021.

Figures from December 2021 show the highest quarterly house price growth since 2006. According to the Halifax UK House Price Index, house prices are up 9.8% in 2021, increasing by an average of £24,500.

As a result, an increasing number of young first-time buyers have abandoned homeownership plans. Other young people are delaying major life events, such as getting married, in order to afford their first home.

How might inflation affect UK house prices?

According to Hargreaves Lansdown’s Sarah Coles, inflation can affect housing prices in two different ways. On one hand, high inflation makes it harder for Brits to make ends meet. As a result, an increasing number of people will struggle to afford a mortgage. This could encourage the Bank of England to lower mortgage rates and decrease the cost of buying a house.

However, Coles warns that in some circumstances, high inflation rates can also persuade the Bank of England to increase mortgage rates even further and push up the cost of housing. The higher mortgage rates are, the harder it is to get onto the property ladder.

It is predicted that inflation will reach 6% in the spring. However, this will largely depend on how much the energy price cap is increased and whether the government offers any further support.

Nevertheless, inflation is set to rise, which could be a good thing for housing prices in the UK.

Other factors that could affect house prices in the UK

Inflation is not the only factor that might affect UK house prices in 2022. It is thought that a rise in unemployment could make it even harder for some people to afford their mortgages.

In 2021, the furlough scheme protected people from unemployment during Covid-19. However, this scheme has now ended. As a result, it is thought that unemployment could rise in the coming year as the pandemic continues to bite.

Supply and demand will also play a role in the price of homes in the UK. If supply cannot match the demand for housing, prices will remain high. However, the potential impact of the above possibilities is uncertain. If the demand for homes decreases in 2022, prices could see a drop. If inflation and unemployment rise further, they could reduce demand, as more people will be unable to afford a home.

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