Energy Price Shock set to hurt housing market

A leading business analyst says that house prices may appear to be defying gravity but they will soon return to normality - thanks to the cost of living crisis.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: “Property prices have been pushed up partly as a result of pent-up demand during a time when supply has been so thin on the ground. 

“A wave of properties hitting the market in early 2022 means many of these people have finally been able to buy. Those who have chosen to use any lockdown savings as a deposit on a bigger property have helped boost demand.

“But there will come a point when this demand is sated.”

Coles says recent Zoopla figures show supply is rising and demand dropping back slightly, and while it’s still high for the time of year, it’s not going to propel the market onwards forever.

She believes that although people feel relatively secure - record vacancies, a record low rate of redundancies, and unemployment back to pre-coronavirus levels - the cost of living crisis might upturn the market.

She continues: “If wages fail to keep up with runaway prices, buyers are far more likely to think twice about stretching themselves to buy ever-more-expensive properties. 

“The eye-watering hike in energy costs hit us … and we could see more buyers questioning whether now is such a good time to buy.”

Second-steppers are particularly badly hit, claims Coles, with many already finding it increasingly difficult to make the move. 

The price of houses has continued to outstrip flats. Detached house prices have grown 22.6 per cent since the onset of the pandemic, while the price of flats is up 14.1 per cent.

There’s also a growing gulf between the average price of flats and the average of terraced houses – which has stretched from £12,000 to £25,000 during the pandemic.

What may save the sales market, she says, is the fact that buying is becoming increasingly attractive compared to renting.

“With rents on the rise, buyers may well be calculating that even at these higher rates, it’s cheaper for them to buy and pay a mortgage than continue to pay rapidly rising rents. As mortgages continue to climb, we’re likely to see more people reassessing this balance.”