Inflation on property prices remains at 11.2%, but signs show an expected slowdown in the property market.

According to a report by Nationwide, property price inflation is currently stuck in double digits, but it is predicted that we will soon see a slowdown in the market.

The average home price has dropped from a growth of 12.1% in April to 11.2% in May. The current average property price sits at £269,914, equating to an increase of £27,082 from the same time last year.

Nationwide remarked that the property market was faring better than predicted despite the spiralling cost of living and recent mortgage rate increases, but that we should expect to see the rise in home prices slow down in the coming months.

Robert Gardner, Nationwide’s chief economist, said: ‘Despite growing headwinds from the squeeze on household budgets due to high inflation and a steady increase in borrowing costs, the housing market has retained a surprising amount of momentum.

 ‘Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows and the number of job vacancies is at a record high.

 ‘At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.

 ‘We continue to expect the housing market to slow as the year progresses. Household finances are likely to remain under pressure, with inflation set to reach double digits in the coming quarters if global energy prices remain high.

 ‘Measures of consumer confidence have already fallen towards record lows. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.’

Since the beginning of the pandemic, house prices have seen such a rapid increase that, when compared with the average income, the cost of buying property has never been higher. This impacts affordability and has resulted in many potential buyers being totally priced out of the market.

The ratio of earnings to house prices has increased from a long-term average of 4.5 to an alarming 7 times.

Previously, buyers have been able to take advantage of low-interest rates to buy more expensive homes; however, with the recent interest rates being increased four times in succession by the Bank of England, from 0.1% to 1%, affordability has taken a serious hit.

Over just a year, fixed interest rate deals as low as 1% have risen to just under 2.5% for a similar mortgage. This impacts negatively on the amount buyers are able to borrow, particularly at this time when the cost of living expenses and the energy crisis are already affecting how much people can spend.

Jamie Lennox, director at Norwich-based mortgage broker Dimora Mortgages, said: ‘The tide could be turning as a number of clients who have been house hunting for the past six months are now finally getting offers accepted where, before, they were consistently being outbid by other buyers.

‘A lot of buyers are currently committed to the idea of moving, but once they finally complete, we believe the housing market could start to dramatically change with a lack of new people considering moving.’

UK households may be feeling the pinch of unprecedented living cost increases, but it seems even record inflation cannot quell the country’s collective craving for good times. According to the latest data published by Forbes Advisor, around 20% of Brits are now using loans (and other financial products) to buy gifts for important events and celebrations.

According to Forbes, 11% of UK residents have used personal loans to cover the costs of attending and buying gifts for events like birthdays, weddings, and christenings. Similarly, 11% said they had resorted to potentially expensive payday loans to ensure they were able to attend parties and events, while a full 26% said that they put the costs of attending events on their credit cards.

Elsewhere, 12% said that they had borrowed money from family or friends to cover the attendance and gift costs of these ‘life events’ and other important happenings.

Cost of living increases hit hard

With UK inflation at a 30-year high of 5.5%, every UK household is feeling the pinch of unprecedented cost of living increases. As a result, 26% of those surveyed by Forbes said that they have had to spend less on parties and events (attendance and giving gifts) due to rising fuel, energy, and food costs.

Around 13% said they have been rendered unable to buy gifts for such events or attend them in the first place due to ongoing living cost hikes.

Even so, Brits continue to spend surprisingly significant amounts of money on attending important events. According to the Forbes survey, this is how much the average person spends on attending and buying gifts for major life events:

1. Family wedding: £235
2. Hen/stag party: £199
3. Friend’s wedding: £199
4. Graduation: £189
5. Baby shower: £165
6. Engagement party: £159
7. Anniversary party: £156
8. Naming ceremony: £154
9. Adult birthday party: £142
10.  House-warming: £138

The financial crisis is putting a major strain on relationships, with more than 40% of those surveyed admitting they had fallen out with friends and family members over event attendance and gift costs. In addition, more than 50% said that if it were socially acceptable to do so, they would prefer not to give gifts when attending important events like those above.

“The end of COVID-related restrictions on international travel and guest numbers at events such as weddings, self-isolation, and mask-wearing is a massive breath of fresh air as we head towards a brighter spring and summer of 2022,” commented Laura Howard, personal finance expert at Forbes Advisor.

“Yet, as we come out of one crisis, the weight bears down heavier on another—the soaring cost of living. Of course, this is in no way comparable to the suffering that millions of Ukrainians fleeing their homes as a result of the war are facing right now. But, for those of us on UK soil, it’s the kind of worry that can keep us awake at night.

“Inflation as measured by the Consumer Prices Index (CPI) measured 5.5% in January—a 30-year high—while the figure for February is almost certain to be higher still. And even that figure will not reflect the next hike in energy costs set to whack household budgets in April.

“We have little choice but to power our homes, fill up our cars with fuel, and do the weekly food shop—all costs that have soared since the pandemic began. But for more and more households, this is simply where the money runs out and ‘extras’ such as life celebrations become unaffordable.”

“It’s little surprise then that an increasing number of us are resorting to borrowing to fund these celebrations—in some cases even using payday loans.”

“Cutting back on expenses is no easy feat, especially now when cheap energy deals are no longer available. But it’s worth seeing if there are some unnecessary expenses to tackle.”

Is it time to switch?

Ms Howard went on to highlight the potential savings many households could make by switching to new lenders and financial service providers.

“Are you paying interest on credit card debt, for example, when you could transfer the outstanding amount to a 0% balance transfer deal? Are you free to switch your better mortgage deal or reserve your next one (which you can do between three and six months in advance) before the next likely rise in interest rates?” she said.

“It could simply be that you are paying for services or features that you don’t use, such as on your broadband and TV deal, for example.”

“Any cash that’s being unnecessarily spent is always likely to find a welcome home, such as to fund life events and celebrations this year. But if it’s simply not available, the key is not to buckle under pressure and spend what you don’t have. Being creative and thoughtful with gift-giving can be a remarkably effective substitute that’s also often likely to be remembered for longer.”

On Thursday this week (5 May), the Bank of England is expected to once again increase interest rates as the cost of living and inflation rates spiral out of control. The Bank of England is doing this in an attempt to stabilise the constantly increasing inflation rate. This rise will see a thirteen-year high in interest rates.

Rates are predicted to rise from the current rate of 0.75% to 1%, the highest seen since 2009. Due to the ongoing war in Ukraine, inflation is expected to continue to rocket with the rise in the cost of living, making it very difficult for many to deal with crippling financial responsibilities.

Members of the MPC (Monetary Policy Committee) have previously raised interest rates during the last three meetings in order to try and get inflation under control. Inflation currently sits at a 30-year high with a 7% inflation rate by the end of March, a far cry from the 2% target set by the Bank of England.

Things are expected to go from bad to worse with the predicted energy price cap revision due to be increased again later in the year. There is also a warning that inflation may, at the same time, rise to a worrying 9%, with some experts believing that it could actually reach double figures.

By raising interest rates when prices are increasing faster than wages, the Bank of England hopes that people are encouraged to save as opposed to borrowing. This tends to slow down the economy and, in turn, help bring down inflation rates.

With businesses and households being forced to tighten up on their finances, the growth of the UK economy is likely to suffer with the expectation that the Bank of England will further trim the economy on Thursday, according to the experts.

Investec economists said: “The UK is in the grip of the cost-of-living crisis. Coupled with tax rises, this leaves a rocky road ahead.”

The expectation from the experts at Investec is that we will be able to avoid a full-on recession. This is primarily due to many being able to save during the COVID-19 pandemic, but spiralling inflation and slow economic growth “leave the MPC in a bind”.

Investec has stated that they are predicting another hike in August from 1% to 1.25% but expect a pause after “assessing how big the effect of the real income squeeze on activity turns out”. More increases in 2023 are a very real possibility, with two more rises expected to be implemented.

February saw a sharp decrease in growth as the cost of living crisis really took hold. Official data released revealed that in February there was growth of just 0.1%, down from 0.8% seen the month before.

The Bank of England stated that it thought this year’s first quarter growth would sit at around 0.75%, which is higher than the expected GDP (gross domestic product), which was expected to remain flat.

Many experts, however, are predicting a flatlining of the GDP in quarter 2, as escalating prices further decrease consumer confidence.

It’s everyone’s dream to have a home built specifically for them. Designed with lifestyle and taste in mind, home builds have proved to be very popular over recent years.

More recently, spiralling inflation and shortages in materials and labour, alongside the war in Ukraine, have caused the costs of building a new home to skyrocket. With most of the most commonly used materials used for construction rapidly increasing in price, developing and building properties are set to take a downturn across Britain.

Neil Rogers of Honeywood Joinery, a carpentry business in Newcastle-under-Lyme, says: ‘I was told by my local merchants that if you’re pricing up a job and it’s longer than a month away, add another 15 to 20 per cent for more timber inflation.’

With the announcement from British Steel of a 25% hike in prices on some of their products, it isn’t surprising that developers and individuals are being more cautious when costing up development projects. Cement companies have reported an eleven per cent reduction in the production of cement, signifying a lowering in demand.

According to data from the National Federation of Roofing Contractors, around 60% of roofing firms have increased their charges.

Figures provided by the Department for Business, Energy, and Industry Strategy show that there has been a massive 21% increase in general materials in the last year. This data was calculated before the onset of the Ukraine war and the energy crisis, meaning prices can be expected to continue on an upward trajectory for some time to come.

So, whether you are doing a self-build or just a modest extension, price rises are sure to make your eyes water.

According to a price comparison site, roof tiles have risen by a whopping 24%, underfloor heating by 15%, and loft conversions by 20% over the last 12 months. Plywood is 44% more expensive, and uPVC has soured by 42%.

The most shocking of all price increases has to be for rolled sheet joists, which have risen by an unbelievable 82%.

Mike Fairman, the chief executive of Checkatrade, said: ‘The current global raw material shortage has had a profound impact on the UK trade and construction industry.

Soaring demand, the impact of Brexit, continued pandemic recovery, and shock factors like forest fires in North America are all reasons behind the shortages.

These massive increases are leading to a rapid decline in the growth of the self-build market. Analysis by estate agency Savills reveals that between 7 and 10% of all homes built in the UK are self-built, equating to around 130,000 per year. The government has plans to increase this to between 30,000 and 40,000 annually and has requested that councils keep a register of self-builders who are looking to purchase plots to develop. The aim is to use spare land that can be developed and offered to those on the register; however, the uptake has been somewhat patchy.

But dreams of your perfect self-build do not need to be forgotten necessarily. Instead, it is worth considering options to keep costs down to a minimum for new builds and extensions.

Getting quotes for labour and materials before the build starts will help to realistically cost the project. Also, bear in mind that the design may cause additional costs; for example, an open-plan design will most likely need load-bearing steel, which is one of the materials that has seen the largest price increase.

Purchasing an ‘off-the-shelf’ home will likely save you some money; in other words, considering a kit-built house is an option to keep costs down. The advantage of this is that buyers are paying a one-time payment for the design, including all the materials, fixtures, and fittings.

One bit of positive news is that the government has scrapped VAT for all materials intended to make homes and properties more environmentally friendly and energy efficient.

Following the Spring Statement this month by the Chancellor of the Exchequer, Rishi Sunak, landlords and homeowners were given the good news that all materials used for improving energy efficiency in their properties would now be VAT-free for the next 5 years, down from the previous figure of 5%.

This reduction in tax represents an estimated saving of £1,000 upfront and will further result in lower energy bills, saving around £300 per year per household. The announcement comes at a perfect time, particularly for landlords who are required to meet new EPC regulations to upgrade their properties and make them more environmentally friendly.

The new EPC (Energy Performance Certificate) regulations stipulate that landlords must increase the rating of their properties to the minimum of a C rating by 2025. This applies to all new tenancies and will be followed by all tenancies by 2028. This could add up to a large bill for landlords, who will be required to make any changes needed to reach the required rate, so the zero VAT on materials will help to keep costs down.

The 5% saving on materials will give landlords an opportunity to reduce their outgoings during periods when their properties are vacant and will in turn help tenants by reducing their energy costs, which will be gratefully received considering the recent increases in rental prices.

Rental rates have increased at their highest annual rate for more than five years, hitting the highest growth seen within the last year. The ONS (Office of National Statistics) has released data showing a 2.3% increase in prices in the private rental sector, the highest seen since December 2016.

The largest rental growth was recorded in the East Midlands, with an increase of 3.8%. London showed the lowest rental price hike, increasing only 0.2%, primarily due to the change in working habits, with many people opting to continue to work from home post-pandemic, according to the ONS. Excluding London, the rest of the UK saw rental prices increase by 3.2% in the last 12 months, up slightly from 3% in the year to January 2022. Looking at each individual country, Scotland leads the way with a rise of 2.6%, followed by England at 2.1% and Wales at 1.4%.

Research conducted by Rentd revealed that the average earnings of tenants fell far below the affordability level for rental prices across all regions of all five nations. This is calculated by looking at the average earnings of a typical renter and using a benchmark of two and a half times the average rental rates. The report found that the average annual wage for those who rent in the private sector was 12% lower than the wider average, with an average income of £28,116.

Across the UK, the average rental price is £968 per calendar month (£11,616 per annum). A tenant would need to have a salary of at least £29,041 to comfortably be able to afford this rental rate. This is a shortfall of £925 when calculating using the 2.5 times wage affordability formula.

With inflation spiralling and the cost of living rapidly increasing, many renters’ dreams of homeownership are becoming unreachable, putting even more pressure on the private rental sector to find more housing stock. The demand for quality, affordable rental properties is on the increase, with both landlords and tenants needing support through these turbulent times.