Will the cost of living crisis cause house prices to fall?

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Whether you’re paying your utility bills or buying groceries, over the last few weeks you’ll have noticed that the cost of living has risen significantly. According to data from the Office for National Statistics (ONS) the rate of inflation rose to 10.1% in the year to July 2022.

As the cost of essentials rises, people have less disposable income to spend, and many are even having to dip into their savings to make ends meet. This fact may make you wonder what impact this will have on house prices, as prospective buyers may struggle to afford large mortgages.

As we’ve discussed in previous articles, there are many different factors that influence the property market, so the answer isn’t always as simple as you might think. With that in mind, read on to find out whether the cost of living crisis could cause house prices to fall.

The cost of living has surged in recent months, largely due to the war in Ukraine

Due to a variety of global factors, the rate of inflation has increased sharply in the last few months.

For a start, Brexit disrupted many international supply lines for businesses, which has pushed up the cost of goods. This was made worse by the Covid-19 pandemic, which halted the transportation of products across the world as various countries locked down to halt the spread of the virus.

The third, and arguably largest, factor that’s led to the cost of living crisis has been the war in Ukraine. Prior to the invasion, the country exported a considerable amount of agricultural products, and with these shipments being cut off, the price of food has risen sharply.

Furthermore, the sanctions imposed on the Russian government have pushed up the cost of oil and gas. Due to this, Ofgem have reviewed the annual energy price cap and are raising it in October by 80%, up to £3,549.

Due to this spike in the cost of living, many households have had to tighten their belts. According to a survey published in City A.M., almost half of Brits said they now buy less food in their weekly shop to save money.

Since many household expenses have risen significantly, it makes it much harder for people to save effectively. Due to this, it can be harder to build wealth to reach your long-term goals, such as affording a mortgage deposit.

This has raised the issue of whether the cost of living crisis could cause house prices to fall, as people can no longer afford to take on large loans. But while the answer might seem obvious, the reality isn’t quite so straightforward.

The housing market is showing strong growth but this may not last

For several months, you may have had to cut your spending, or even dip into your savings, to make ends meet. That’s why it might surprise you to hear that, amid the cost of living crisis, property prices have continued to grow.

According to data from the ONS, in June 2022 the average home was worth £286,000, which is a 7.8% increase on the previous year.

As you can see from that statistic, the property market can be notoriously hard to predict, since there are so many factors influencing it.

One of the biggest reasons why house prices have continued to rise is that even though demand is reducing, it is still much greater than the supply. According to FT Adviser, the limited stock of homes is applying significant upwards pressure on prices.

That being said, it seems likely that the cost of living crisis will have an impact over time, both directly and indirectly. Not only does inflation affect buyers’ spending power, but it could also lead to interest rate rises, making mortgages more expensive.

In August, the Bank of England (BoE) raised their base rate up to 1.75% to help tackle this problem, and have hinted that they may increase it further if necessary.

This seems likely as data shows that the factors causing inflation are unlikely to abate in the near future. In fact, according to the Guardian, analysts from Goldman Sachs have predicted that the cost of living could rise to 22% in 2023 if the government can’t solve the energy crisis.

Working with a broker can help you to secure a mortgage

Due to these concerns, there is some pessimism about the future of the housing market, as a result of falling disposable income and rising mortgage costs. Despite this, however many analysts are still confident that the UK will avoid a property market crash.

According to the Times, property website Rightmove predicts that house price growth will slow by the end of the year, though won’t fall. This is because while the cost of living crisis has affected buyers, the upwards pressure caused by the shortage of supply is enough to compensate for that.

In the same vein, estate agent Hamptons have estimated that growth will fall to only 3.5% in 2022, and then to 3% in the following year.

As you can see, despite the cost of living crisis, many experts are confident that the property market is resilient enough to absorb this shock.

That’s why, if you want to take your first step onto the property ladder in the near future, it might not be the best idea to wait for prices to fall. Instead, being proactive and speaking to a professional can be much more useful.

When you work with a mortgage broker, we can help you to increase your chances of securing a loan, as we have in-depth knowledge of the underwriting process. With this, we can find a lender who would be more likely to approve your application.

Working with a professional can help you to rest easy, knowing that you’re maximising your chances of securing a mortgage.

Get in touch

If you want to improve your chances of securing a mortgage, we can help. Email us at office@verve-financial.com or call 0330 320 5048.

Please note:

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.


This item was correct at the time of writing and the information contained may no longer be up to date.

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