How Inflation Impacts the Property Market: A Closer Look
The latest Consumer Prices Index (CPI) from the Office for National Statistics has revealed that inflation rose from 1.7% in September to 2.3% in October. But how does this affect the property market?
The relationship between inflation and house prices is complex and not always straightforward. Here’s what you need to know.
Inflation and the Property Market: The Link
The CPI measures the average change in prices of goods and services over time, but it doesn’t directly include house prices or mortgage costs. It does, however, factor in rents. While inflation doesn’t directly dictate house price trends, it can influence them in several ways.
When inflation rises, the cost of living increases, leaving people with less disposable income. This can lead to reduced activity in the property market, with fewer people moving or buyers making lower offers, potentially putting downward pressure on house prices. Conversely, when inflation falls, people may feel more confident about spending and investing, which can drive house prices up.
The Role of Interest Rates
Inflation also impacts interest rates, which are a key factor in mortgage costs. The Bank of England (BoE) aims to keep inflation at a 2% target and adjusts interest rates to achieve this. If inflation rises, the BoE may increase interest rates to curb spending, making mortgages more expensive. On the flip side, when inflation falls, interest rates are often reduced, which can make borrowing cheaper and stimulate the housing market.
What About Renters and Landlords?
Inflation tends to push rents higher, which can be challenging for tenants but beneficial for landlords. Higher rents can improve landlords’ rental yields, offering better returns on their investments.
Property as a Hedge Against Inflation
Over the long term, property typically outpaces inflation. A 2020 report by Avison Young revealed that property investments outperformed inflation in 85% of all five-year rolling periods since 1985. This makes property an attractive option for owner-occupiers, landlords, and investors alike.
A Stable Market in Uncertain Times
Ultimately, a well-priced, well-presented property will always find a buyer, regardless of inflationary trends. If you’re thinking of selling or investing, we’re here to provide expert advice tailored to your needs.
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If you’d like to discuss how inflation might affect your property plans, get in touch with us—we’d love to help!
