HOW DOES RISING INFLATION IMPACT ESTATE AGENTS IN THE UK?

HOW DOES RISING INFLATION IMPACT ESTATE AGENTS IN THE UK?

In simple economic terms, inflation is the general increase in the price of goods and services in the economy. When there is an overall price increase, every unit of currency buys fewer and fewer commodities and services. Inflation results in the reduction of purchasing power. For example, if inflation is running at 3 percent, an item that cost GBP 1 last year will be priced at GBP 1.03 this year. We can see the immediate effects of inflation on our local grocery store or gas station. And yes, inflation veritable affects real estate agents, as well. How? Let us find out!

WHY ARE UK HOUSE PRICES CRASHING?

Simply put, UK house prices are on the verge of crashing due to inflation, which is at a 30-year high currently and is only expected to increase shortly. There are a lot of reasons for the unprecedented inflation –

● The global supply chain disruption has led to higher shipping costs, making certain goods more expensive.

● The Ukraine-Russia conflict has resulted in higher oil and energy prices. The steep rise in their prices has not only impacted the cost of heating homes and filling up cars but also pushed the cost of transporting manufactured goods.

● The post-pandemic staff shortages have compelled many companies to increase wages to attract employees. But unfortunately, this cost increase is typically passed on to consumers.

These are three simple reasons for the steep inflation the UK is experiencing. But, its consequences are pertinent for real estate agents. How? Let us evaluate!

TOP THREE WAYS INFLATION AFFECTS REAL ESTATE

1. High Lumber Prices – Nearly every residential dwelling in the UK is made of timber framing. High inflation means goods, including lumber, cost more. The spike in costs of the essential commodity of lumber impacts not only builders and contractors but also homebuyers and investors, as they will have to pay more for new construction they are buying or financing.

2. Increase in Rent – Another crucial way inflation affects real estate is through a rent increase. For renters, this is terrible news, as they will have to pay more. However, as an estate agent in the UK, you will be compelled to raise the rent to compensate for living costs, like maintenance, property management, and materials. However, a rent increase is not necessarily bad for property owners as they can pass on the increased costs to renters and take advantage of the situation to increase profits.

3. Increase in Mortgage – Inflation reduces the purchasing power of the dollar, leading to securities tied to mortgage-backed bonds falling. As such, investors, mainly large financial institutions and investors, began selling off their bonds, leading to an oversupply of mortgage-based bonds in the market. Such a scenario automatically decreases the value of the mortgage, which is bad news for homebuyers on the hunt for a new home. In addition, higher mortgage rates make purchasing a home more expensive, which compels many to continue renting. However, for existing homeowners, higher mortgage rates are not a bad thing if they are locked into a fixed-rate mortgage.

INFLATION AND HOUSING MARKET 2022: ALL YOU NEED TO KNOW

The current supply and demand imbalance is driving UK house prices to shoot up, and inflation is accelerating this upward momentum. With an increase in inflation, the interest rates shoot up, and so do the mortgage rates. Simply combining a higher price with a higher mortgage rate automatically reduces the affordability of real estate. Therefore, there is a possibility of the UK house price crash coming shortly. If property prices are too high, mortgages are exorbitantly expensive, and there is no government-support program, demand will plummet, taking the house prices with it.

● Buying Property during Inflation – The answer is simple. If your budget is tight, it might not be a good idea to jump on the property ladder right now because you might struggle to afford higher mortgage repayments if other costs continue to increase. However, if you have a secure job and there is enough room in your budget for you to afford mortgage repayments even if interest rates and living costs skyrocket, then there is no reason to delay buying property. Likewise, if you are currently renting, remember that the rent could go up. In some cases, it might be cheaper to buy a home than to rent one.

● Is It Ideal to Sell Property during Inflation – A rise in inflation means that the house price growth is likely to be slow. Therefore, if you sell your property now, you will be able to lock in the gains you have made. Likewise, it might take longer to find a buyer if you wait to sell your home.

HOW TO PROTECT ONESELF DURING INFLATION

With the UK house prices on the verge of crashing, the most important thing that you can do is budget. The key is to have an apt idea of how much is going in and out each month. Next, you should gauge areas to reduce spending, including cancelling subscriptions, reducing luxury shopping, or changing your utility provider.

WHERE DO REAL ESTATE AGENTS FARE IN THE SITUATION?

With the UK house prices being affected by inflation, as a real estate agent, you have to ride the tide and manage the dualities of the scenario – from the renter's and proprietors' perspectives, respectively.

WRAPPING IT UP

Taking the help of a reliable real estate agent during such challenging times can be of immense value. TRPE- The Real Property Experts is an agency that has forty years of experience in London properties, and it has witnessed and sailed through multiple inflations and house crashes in the UK. So, in case you are looking for assistance with your property and wondering, 'should I sell my house during inflation,' then the experts at TRPE might be able to guide you effectively.