Inflation could undermine house-price growth, says latest survey

Asking Price Index from says price growth is tailing off, but rental growth has returned and demand is strong.

Rising inflation threatens to undermine all the gains of the Covid property boom, claims in its latest survey.

Despite the boost from low interest rates and the stamp duty holiday, inflation in energy, food and goods is climbing rapidly – while price growth is tailing off in  formerly hot regions.

However, the lettings market is looking strong, with a return to growth in rents, according to the property portal’s Asking Price Index for October.

The London lettings market, plagued at the start of the year by oversupply, has turned around.

“In a remarkably short time, the market has switched from a tenant’s market to a landlord’s market. Rents are now up by more than 20% in many central boroughs and supply continues to fall, indicating that rent hikes will continue for the rest of this year and perhaps into next,” says the report.

New instructions low

It adds that the number of new instructions entering the UK sales market continues to be low compared with pre-Covid levels, down 7% last month compared with September 2019.

The number of newly available rental properties entering the market has also fallen considerably across the UK – down 31% year on year in September.

The annualised mix-adjusted average asking-price growth across England and Wales edged up slightly to 7.8% this month; in October 2020, the annualised rate of increase of home prices was 3.5%.

The East of England and the East Midlands remain the top performers in terms of regional house-price growth, with annualised price inflation of 12.3% and 10.9% respectively, supported by considerable residual demand and a lack of supply.

Room for more growth

“The five-year growth in London asking prices is the lowest of all the English regions, Wales and Scotland, and is a clear indication that there is plenty of room for further growth, especially in such a low-interest-rate environment,” the survey notes.

The total sales stock total in London has continued to fall and is now down by 19% since the oversupply peak in November 2020. Moreover, the supply rate of new instructions is 42% lower compared to August last year, when the London exodus triggered a glut of sales properties.

The report concludes: “Our outlook is that prices and rents will continue to rise in tandem in this highly inflationary environment until there is a significant loosening of supply in either market or mortgage lending becomes tighter, but growth in asset values and yields may well be overshadowed by monetary inflation.

“Lenders continue to be lenient in regard to arrears and the repossessions court backlog will take a long time to unwind. Moreover, interest rates look set to remain extremely low, with any talk of raising rates to tame inflation unlikely to be enacted.”

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