Inflation, house prices and ‘less desirable characteristics’

22nd June 2022

Undeterred and unaffected by the cost of living crisis, the housing market has continued to grow exponentially in recent months – despite claims from mortgage lenders that there are signs of cooling.

According to Nationwide, annual house price growth has reached highs of 14.3%, which is the largest increase seen in almost 20 years. A spokesperson for Nationwide conceded that the mortgage lender was ‘surprised’ by the amount of momentum the housing market continued to show, “given the mounting pressure on household budgets and the steady rise in borrowing costs.” The Bank of England has already raised interest rates three times over the course of just four months in an attempt to offset growing inflation. However, so far this has done little to discourage would-be homeowners.

Halifax also shared a similar sentiment, stating that house prices have continued to soar for the eleventh consecutive month. This means the average price of a house in the UK has reached yet another record high of £289,099. Whilst this figure may seem daunting to many first-time buyers, Halifax qualified this by explaining how May’s figure was the slowest increase seen since the start of the year, which could signal a potential respite.

Russell Galley, managing director for Halifax, in an attempt to reassure the public, said: “mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow.”

However, it is unclear whether this prediction will come to fruition. This is not the first time lenders have made this claim and many fear it will not be the last either. It is a well-established fact that the housing market has a historic problem concerning supply and demand; with the population ever increasing it is unlikely that supply will ever meet the required demand, especially without a period of ‘unprecedented housebuilding.’

In addition, inflation hit highs of 9% in April and the Bank of England has warned that this figure could reach 10% within months. People want to buy now before inflation rises even more due to current supply and demand issues – a combination that is unlikely to cause a drastic correction to the housing market in the near future.

It is also not just the purchasing market which has been hit hard. Due to the shortage of homes available to rent, bidding wars have become a common occurrence with prospective tenants going to extreme lengths in an attempt to secure a tenancy.

This has been evidenced by landlords demanding CVs of their tenants’ children, proof that their pets are well behaved and in many cases more cash upfront. Badly behaved pets and children are often viewed as ‘less desirable’, and rents are now at their highest level ever, up 11% annually to £1088pm outside London.

This has added another layer of toxicity to an already imbalanced power dynamic between landlord and tenant, which has had the effect of pricing out lower income earners and those who possess ‘less desirable characteristics.’