Could inflation push more people to rent?

Could inflation push more people to rent?

The UK property market, as it stands, is currently heavily weighted towards price growth and rental growth. As inflation continues to rise, making purchasing a house even more difficult, many are wondering – could inflation push more people to rent?  Broadly speaking, it’s sensible to think that this may somewhat correct itself in the short term because of the cost of living crisis, the fuel crisis, the war in Ukraine and also the rise in interest rates that have been announced. 

As reported by the BBC, ‘Interest rates have been raised from 1% to 1.25% – their highest level for 13 years. The Bank of England hopes to slow the rate at which prices are increasing. It has warned that inflation could pass 11% later this year.’

With interest rates rising quickly in an effort to curb inflation, the expectation is that consumer spending will fall and potentially so too will demand for houses and a fall in prices, whilst highly unlikely, isn’t entirely ruled out.
There’s no definitive way to answer this as any attempt to answer is a theoretical future situation, and things can change.

Could inflation push more people to rent?

Having said that, there are some fundamental market conditions that we can look at and make predictions from.

As an example, one basic fact is that if the Bank of England base rate of interest continues to rise then it will make mortgage borrowing more expensive. This will mean that consumers will be able to borrow less money and subsequently have less money to spend on buying a house.

We can dig a little further, too, with insights from experts such as Hannah Smith at The Times, writing for their money mentor section.

Asked about the possibility of house prices dropping soon, Smith notes ‘It’s still relatively cheap to borrow money to buy a home, especially for those with big deposits, so the housing market hasn’t seen a big impact yet.

But further rises are expected throughout 2022, which could dampen the housing market because it means mortgage repayments will increase.

The cost of living crisis is likely to be the biggest cause of a slowdown in the housing market. As household budgets come under pressure, fewer people can afford to stretch themselves to buy homes.

It’s thought that some first-time buyers could hold off as they wait to see what happens to the market.’
Smith notes similar market conditions to us and if, as she predicts, first time buyers hold off for now until the market is more predictable, then that almost certainly means that they’ll continue to rent in the meantime.

More people could be renting next year

Furthermore, those who may have considered saving for a property may now rethink that decision and instead look to put their money elsewhere.

As we’ve noted, there’s no guarantee that there will be a large influx of renters into the market, pushing rents higher, however, with the facts we have available it wouldn’t be surprising to see this happen over the next 12 to 18 months.

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