To Buy Or Not To Buy: Market Peak For Purchasing
Are fears of the growing cost of living having an adverse effect on the UK housing market? After a robust first quarter, London appears resilient to concerns over the economy, and buyers remain, for the most part, unwavering in their commitment to moving house. As the market reaches a peak, buyers are having to be savvy in their financial judgment.
Spiralling Inflation and Successive Interest Rate Rises
Rising energy bills, inflation, and interest rates have become panic-stricken topics of small talk in the last couple of months in the UK. In an attempt to tackle accelerating inflation rates, the Bank of England raised interest rates to 1%, the energy price cap is predicted to jump 42% in October this year, and to top it off, inflation is forecast to reach its highest level since 1982. How is this likely to impact the housing market?
Gravity-Defying London
A spike in borrowing costs like this would normally lead to falling house prices and a slowing of the property market. London, on the other hand, no longer appears to follow this pattern - Central London’s first quarter was the strongest in 8 years, with prices rising by 1.1%. Buyers are also showing little sign of slowing down: 77% of respondents in a Savills survey said that interest rates had no impact on their budget and 74% said the cost of living had no effect on their budget.
Market Activity and Buyer Affordability
The labour market plays a key role in market activity, and unemployment rate has recently fallen back to pre-pandemic figures. With jobs intact and a gravity-defying property market in London, affordability also remains high, enabling opportunities to buy while the market is at its peak. Waiting for a correction in the market to pull prices back down sounds financially smart, but a fall in prices due to an economic downturn will have likely also impacted the buyer’s affordability, particularly for first-time buyers.
What’s Paving the Way for Sustained Demand?
Although only 16% of people are now commuting 3 days a week or more (compared to 58% pre-pandemic), Savills predicts the “race for space” to gradually dwindle due to the practicalities of proximity to the office. This post-pandemic attitude is shaping demand for city property across the UK. Uncertainty remains as to whether property prices are going to fall or continue to rise later this year, however confidence in London appears sustained. International investors are also pouring back into Central London. Attracted by top tier universities and research institutions, property investors such as Bellco Capital are planning to spend billions on specialised laboratories and offices over the next 5 to 10 years. The life sciences sector was thrown into the spotlight during the pandemic when we acknowledged and appreciated the importance of medical research investment. This international investment continues to fuel the UK’s goal to become the tech hub of Europe, a “science superpower” says the Prime Minister, which will feed investor confidence and sustain demand in the capital.
To buy or not to buy property in London comes down to three key summary points:
Your affordability - you might be worse off waiting for prices to fall because your affordability may do too.
London’s lack of gravity - historical resilience to financial downturns would suggest that London property prices are not plummeting any time soon.
The future of London - with plans for the UK to become a technology hub, international investment is flowing into the capital and fuelling a sustained confidence in its future.
If you’re interested in hearing more about the trends of the London property market, get in touch - freddie@invest-eight.com
