How shockwaves from cost-of-living crisis are reaching the house market

Housing market activity has slowed as interest rates have risen (Daniel Lynch)

Zoopla, the online property platform, has warned the impact of the cost-of-living crisis will appear more significantly in the UK housing market this year, although a full-scale crash is unlikely.

Home buyers and mortgage payers are facing a combination of soaring inflation and the rising interest rates central banks are adopting to fight it. Attention this week will focus on the Bank of England’s Thursday monetary policy meeting -- at which some City forecasters are expecting a double-sized, 0.50% hike -- which would take UK interest rates to 1.75% and even further above the record 0.10% low touched early in the pandemic.

“Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution,” said Richard Donnell, Executive Director of Research at Zoopla, who expects price growth to weaken further.

“The housing market is not immune from higher mortgage rates which we are starting to see increase quickly,” he said. Zoopla expects demand for homes to weaken for the rest of this year and into 2022 as mortgage rates rise.

But Donnell says there is no reason for buyers and sellers to panic, with the desire to move home expected to survive as the implications from the way the pandemic changed working patterns supporting the market.

People working from home, the company says, are five times more likely to move than those with unchanged job circumstances, as people seek out place to live that can provide a better life/work balance. And there is supply from sellers leaving the labour market and putting homes on the market, while searches for homes that are cheaper to run as energy costs soar are also keeping the overall property market afloat.

Meanwhile, some buyers are moving more quickly to secure deals as rates rise.

“We don’t expect current trends to lead to a marked drop in house prices next year, buyers will become more wary and it is important sellers are realistic when pricing their homes to sell,” Donnell added.