Since the beginning of the pandemic, the UK property market has seen house prices continue to rise. So far, there has been no end in sight, but recent events seem to put a dampener on this trend.

In this market report, we will tell you about the current changes in the property market and show whether price growth will now really level off or whether there may even be falling prices.

Will property prices continue to rise?

The demand for real estate remains high. There are some factors that increase the demand for rental properties, especially in city centres.

Reasons for this are, for example, the return of workers to offices. Working from home allowed many workers to live further away from the city centres, but now many of these people have to go back to the office on a daily basis. Many do not want to travel the long distances from the periphery of the city and are looking for housing closer to their workplaces.

International demand has also returned. Especially in London, housing is increasingly in demand from foreigners who want to work, study or simply live in London.

This led to an average increase in rents in the UK of 11%. Rents in London are even increasing by almost 16%. The increased growth in London can be attributed to the two previously mentioned factors. Property prices rose proportionally along with rents.

However, growth is slowly reaching a limit. Ever-increasing rents also mean that housing is becoming more and more expensive in the UK. The average British single person now spends 37% of their salary on their home. Combined with rising inflation and the general cost of living, many tenants could soon be squeezed out, which would of course also mean less income for the landlord.

Lastly, of course, one must not forget the rising interest rates. The ultra-low interest rates that investors have enjoyed have been an unusual period historically. The Bank of England has already raised the base rate to 1% and presumably this will not be the end.

Will the state intervene more in the market?

The escalating prices have led to many voices increasingly in favour of greater government intervention in the market. Particularly criticised is the fact that there is a lot of vacant housing in all areas of the UK, but the only proposed solution to escalating prices continues to be an increase in supply. This, they argue, is an indication of an inefficient market, which would require government intervention.

Proposed measures include, for example, a reform of the “Stamp Duty”. Rising prices mean that around 4.3 million properties are now above the £125,000 threshold, making Stamp Duty payable at 2%-12% of the purchase price. Others propose to extend the right to buy for social housing.

Summary

There are economic and social factors that are squeezing the UK property market. Rising ancillary purchase costs and falling purchasing power in real terms mean that demand for property is likely to fall.

The outcome of these factors is uncertain. Some expect lower growth and others already anticipate falling prices.