Here's What Inflation Means If You're Buying Or Selling Your Home

Is it a good time to buy a home, if you’re able to, given the current economic climate?
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We’ve all heard about the cost of living crisis and inflation going up. It seems the price of everything – food, energy and transport included – is increasing, while our pay remains the same. So we’re left with less money to enjoy our lives and save up to do things like buying our own home.

Is it even a good time to become a homeowner, if you’re lucky enough to have the means to, given the current economic climate?

We spoke to Makala Green, chartered financial planner and author of The Money Edit, and to property website Zoopla’s head of research Gráinne Gilmore, to get some answers.

What’s going on with inflation?

Inflation rates have shot up since the UK came out of lockdown in July, and they have now climbed to some of the highest levels seen in the past few decades.

The consumer price index rose by an annual rate of 6.2% in February, up from 5.5% in January, making this the highest rise since 1992. This increase can be explained by the surge in global prices for energy, petrol, food and durable goods.

While the cost of living goes up, wages are staying put, meaning people have less money to deal with household basics, as well as money to save.

Have house prices changed?

The property boom during the pandemic resulted from stamp duty cuts and a combination of cheap mortgages and a public desire for more space, which caused house price inflation to spiral.

The average house price in January 2022 was £24,000 higher than a year earlier, meaning the average UK house price was £274,000. In England, the average was £292,000.

How does inflation impact property ownership?

Inflation is closely intertwined with the housing market, explains Makala Green, chartered financial planner and author of The Money Edit.

“The simplest way to explain is that inflation can affect properties’ overall supply and demand,” she tells HuffPost UK. “Where there is increased demand, it can drive up house prices and lead to many potential buyers being priced out of buying a property due to a shortage of properties on the market. Alternatively, if there is less demand and more buyers, this will reduce property prices.”

The surge in house prices makes it a tricky time for first-time buyers “watching house prices rocket far faster than they can save a deposit”, she adds.

“Existing homeowners are stuck in a Catch 22 situation where even if they can sell for more, the house they want to buy has also significantly increased. In turn, sellers are also affected: they may seem richer on paper but cannot realise any gains unless they sell or cash in equity.”

How will inflation affect buying or selling property?

Zoopla’s head of research Gráinne Gilmore says: “Economic headwinds, including the rising costs of living, inflation and increasing mortgage rates mean that buyers and movers will be paying increased attention to the affordability of their new home, both the purchase price, home loan repayments and running costs.

“Buyer demand is still very high across the UK, with the number of sales agreed in Q1 higher than pre-pandemic levels, and we expect the market will remain busy in the coming months, as the pandemic-led search for space continues.”

But as the year develops, Gilmore says, we should expect buyer demand to moderate to more normal levels, leading to an easing of house price growth.

So is now a good time to buy or sell?

Those hoping to sell are in the stronger position at the moment, according to Gilmore.

“Buyer demand is unseasonably high, and homeowners in many parts of the country thinking of moving will be able to lock in sizeable gains in the value of their home registered over the last few years,” she says. “The average home across the UK has risen in value by more than 20% since 2017.”

Green says it depends on personal circumstance but it may not be the best time to buy right now. However, she advises you not to hold off forever.

“It’s worthwhile to continue to save and not give up on your property dreams. It’s uncertain when things might be easier to get on the property ladder, if at all,” she says.

“However, there are options of using government schemes, getting a financial boost from Lifetime ISAs, clubbing with a partner or friend to buy a property, getting support from the bank of mum and dad, or buying a share of a property, instead of outright.”

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