Ukraine Crisis May Cool Housing Market

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A leading housing industry analyst has warned that the brakes are being applied to UK house prices as a result of the Ukraine crisis. This warning has been issues despite Halifax’s latest house price index showing a 10.8% annual rise.

More specifically, the average house price in the UK is expected to cool down, whilst energy prices soar due to countries having to look for alternative energy sources outside of Russia.

Karen Noye, Mortgage expert at Quilter says: “The invasion in Ukraine continues to shock the world and its impact will ripple throughout the UK’s economy. One of the main reasons this could affect house prices is due to the West turning its back on Russian energy. At a time when energy costs were already set to soar, prices may go even higher than predicted. 

“Even food could get more expensive with the price of wheat also set to rocket. All this means that first time buyers and prospective home movers simply have less cash to splash making them think twice about embarking on the expensive process of buying a new house, which could financially destabilise them at the worst possible time.

“On top of these barriers, any deposit for a house will be continually eroded by inflation reducing people’s spending power. The Bank of England before the Ukraine conflict predicted inflation to peak at 7.25 per cent in April, but the war may cause it to go higher and stay that way for longer. 

“The only way to combat this will be to increase interest rates and naturally this will mean lenders are forced to take their cheaper mortgage deals off the shelves. This will further price people out of the market and potentially make others think twice before making a move. Those on long fixed rate mortgage deals will feel insulated by any huge interest rate spike for the time being but first-time buyers or those coming to the end of their deals won’t have such luck and will see their monthly repayments bulge.

“Ultimately, 2022 could see house prices slow significantly if not drop as the economy deals with the prospect of war in Europe. However, the UK suffers a significant housing problem as there simply is not enough stock. Until the shortfall is met house prices are likely to stay relatively high. As a result, this continues to make the prospect of buying your first home incredibly difficult. With taxes likely to go up to pay for the pandemic response, the cost of living increasing and house prices staying incredibly high, there are few worse times to try and get on the housing ladder.”

The recent Halifax findings have enabled estate agents to take more of an immediate view of the market, rather than looking towards the future.

Nathan Emerson, Propertymark chief executive, comments: “Agents are still reporting bidding wars and buyers who are migrating. Migration means that some buyers can bring with them a larger budget, especially if they are moving away from a city which can filter through to higher purchase prices. 

“Many buyers who have lost out are still waiting in the wings. In January, our agents reported registering an average of 100 new potential buyers per branch. Coming into February we have seen an increasing number of valuation appointments and we are hopeful that more sellers will come to the market which will help to ease price rises."

And Jason Tebb, chief executive officer of a property portal, adds: “Double-digit price growth across many areas of the country underlines the strength of the market, which is far from limited to price hikes in the capital or the south-east. More stock is coming to market as you would expect as we head towards spring but it’s not keeping pace with pent-up demand. Decisions need to be made quickly, or buyers face missing out.

“As values continue to rise, sellers may be tempted to hold fire in order to achieve the maximum price for their homes but with many of them also moving up the ladder, the trading gap is widening all the time. If we see double-digit growth again this year, there’s a risk of being priced out of that upgrade, as affordability is stretched further still.” 

Despite fears of the Ukraine crisis shifting average UK house prices, it is believed that the forces which rule and dominate the UK property market will be unaffected. The supply and demand imbalance remains firmly imbedded.

Noye further added: “There is a chance that house prices plateau rather than drop. Until housing stock is meaningfully replenished by the government and the big housebuilders, house prices will remain high as there is simply still too much demand and too little stock.”

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