The easing of Covid-related restrictions has had a significant impact on the economy. While it has boosted consumer spending and increased confidence and demand, it has also increased the costs for goods and service providers. These impacts are of course finding their way to the consumer across the board and are having an ongoing effect on the economy.
Amer Ali, associate solicitor in the Residential Conveyancing team at Blacks Solicitors, shares his insight into the effects of rising inflation on the property market.
The current rate of inflation is 5.1% which is the highest level since 2012. However, should prices of goods and services continue to rise, we could see a further growth in the rate of inflation. This increase is likely to impact the Bank of England base rate and force The Monetary Policy Committee to raise it. This in turn would have a domino effect on the property market.
It’s very likely that mortgage interest rates will increase thanks to the current rate of inflation, and this will impact new and existing property ownership.
What can consumers do?
If a fixed rate mortgage is coming to an end, it’s advisable for property owners to confirm the options available to them with their mortgage adviser whilst the rate of inflation has not yet peaked.
For first time buyers waiting for the ‘cooling’ of the market and prices to drop, it might be worth reconsidering. Affordability might be affected if potential buyers wait too long and we see a further increase in interest rates.
Sellers should consider offloading their property now whilst interest rates are low, and buying power remains in the market.
Investors and landlords may want to remortgage their portfolio whilst interest rates are still relatively low, or even consider growing their portfolio.
In the event that inflation does cause interest rates to increase, the property market will likely shift somewhat towards the lettings market, simply because buying power will slow down. Therefore, it would be prudent to capitalise on the opportunity and increase a rental portfolio if this is a viable option.