Home Residential Property Why there won’t be a crash in the property market

Why there won’t be a crash in the property market

by LLP Editor
24th May 22 12:17 pm

According to Rightmove’s latest House Price Index, average property prices have increased by £55,000 in the past two years to a record high of £367,501 – 31% higher than 2019. The report, which was released today, also showed that prices have risen a staggering £7,400 in the past month alone. With the lack of supply causing the fourth consecutive price record, there are questions surrounding whether the property market is ready to crumble. David Hannah, Group Chairman at Cornerstone Tax, discusses if he thinks we will see a property market crash in 2022:

“I don’t predict a property market crash in 2022. The surge in demand, even with rising interest rates, has represented an adequate amount of liquidity, which is a good sign. The crash of 2008 happened because of a sudden loss of liquidity in the international banking market and we aren’t in that same situation again. We have had the pandemic, and substantial government spending because of it which has increased interest rates. But the question has got to be – will the global lending system be able to maintain the liquidity that it lost in 2008? And I think the answer is yes it will. We are certainly not going to see, as some people have predicted, 20, 30 or 50% falls in UK housing.

“If we look at what has been going on – house price growth, retail inflation, energy costs surging, that’s going to put pressure on employers to raise wages. I believe wages will rise, meaning real spending power will not actually decrease. If you borrow a hundred thousand pounds today, the fixed figure of one hundred thousand pounds doesn’t rise in line with inflation. So, in five years time that debt is probably worth half what it is today. In high inflationary times with relatively low interest rates, it makes sense to borrow. The debt is being eroded by inflation, whereas the value of the asset (the house) is actually going up in line or ahead of inflation. It’s a way to make real returns

“The problem we do have is the rate of demand and supply. If builders are building and they’re over supplying, it will soften the increase and the appreciation in asset value. But, if the number of people wanting to buy houses continue to exceed the supply, then those prices are going to rise.

“We have an open market in the UK which means not only are domestic purchasers and investors looking to buy but we have inbound investors. We also have quite a number of people relocating to the UK. Overall, I expect demand for UK housing to continue to outstrip supply – pushing price increases ahead of inflation and provided wages are increased, the affordability of housing will stay in lockstep.”

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