Yet another unprecedented crisis is currently affecting the world. Russia’s full-scale invasion of Ukraine, as uncalled for as it is, is sending shockwaves through every sector imaginable, from politics to economics. Talking about its effect on the economy, it has sent the stock market tumbling. It is adversely impacting the costs of fuel, food, energy, and of course, property.
In this article, we will be examining in detail how the Ukraine crisis will impact property costs in the UK. We will examine everything from land to the prices of building materials like steel and cement. In due course, we will also discuss how it will affect home sellers and buyers as well.
Are you someone looking to let, sell or buy property in Bexleyheath and around South London? Then you can opt for estate agents in Bexleyheath to book a free no-obligation sales and lettings valuation. This will help you out with your property deals amidst the changing tides of the economy.
Where did the United Kingdom’s Property Sector stand Before The Crisis Unfolded?
The situation right now is extremely volatile due to the looming possibilities of another global war, which, fingers crossed, will not materialise. But even before the Ukraine crisis, the property sector went through some major ups and downs as a result of multiple factors. The most prominent among them is the Pandemic and Brexit.
In May 2020, the Bank of England had warned of a potential 16% fall in prices as a result of the pandemic’s impact. Despite this, in 2021, house prices witnessed a record surge due to the “stamp duty holiday”. This temporary arrangement was enforced by the UK Government in July 2020, across England, Scotland, Wales and Northern Ireland.
According to the House Price Index from Halifax, there has been a growth in the annual UK house price of 10.8% in February 2022. This also translates to a rise in house prices by £44,138 since February 2020.
How The Property Sector Will Be Affected During The Ukraine Crisis
According to Pantheon Macroeconomics, before the situation in Ukraine unfolded, the forecasted rise in inflation rates was pegged at 7.7% in April and back down to 6% in October 2022. After the situational changes, inflation is bound to rise to 8.2% in April and would be at 7.5% in October 2022.
What is Inflation?
In simple terms, inflation refers to a general increase in the prices of goods and services. This occurs due to the fall or depreciation in the value of money.
Usually, inflation is not starkly noticeable. But due to the extraordinary circumstances posed by the combined effects of the Pandemic, Brexit and the Ukraine crisis, this isn’t the case. The fact that average wages are not keeping up with the upward spiralling of prices is more than an open secret.
However, the buoyancy of the property market has, astonishingly, not yet been affected by the decreasing household finances (caused by soaring interest rates and inflation). This has baffled many commentators in the process. In theoretical circumstances, prices should be coming down due to the situation, but there is supposedly a “surreal lack of stock”, pushing up the rates.
Again, this apparent defying of economic gravity will be short-lived. We are in the earliest stages of this issue, and the situation being unpredictable, projections and estimates cannot be completely relied upon. The property market will have to catch up with the rest of the sectors due to a multitude of reasons.
To answer the titular question, it is a mix of both. First, there will be an increase in prices due to inflation. But once demand slows down substantially, the prices will drop with the same magnitude.
How Will The Property Prices Affect You?
As a Property Buyer
You can expect a stark rise in property rates due to both the pre-existing conditions of the market, as well as the building up of tension between Russia and the West.
The prices of energy and fuel are already at an all-time high. Now, the market might also witness a surge in the cost of building materials of houses, as well as an increase in labour wages.
Firms like Persimmon, however, report that its increase in production of items like timber frames, bricks and tiles is providing it with a level of immunity from the price surge.
Another factor that might affect you is the mortgage rate. The traditional strategy of the Bank of England has been to increase interest rates to counter inflation. If you plan on obtaining a loan, you will have to spend more on a mortgage than before.
As a Property Seller
Due to the uncertainty of the times, you might experience a real dearth in demand due to the inflation of the costs of everyday items. An average person might prefer to not risk financial instability in these situations.
The experts are continuously monitoring the situation in order to come to conclusions about what will happen to the property. At the same time, you can be assured of no house price crashes immediately. If you manage to secure a good deal, go for it because what will happen a few months later cannot be accounted for at the moment.
Final Thoughts
Using property as a hedge against inflation is an old strategy of investors. The Ukraine crisis is still in its early stages. Thus gauging its impact on the global market, especially the UK, cannot be done with surety until a few months later.
There definitely are promising factors. Property demand in the UK never shows a dearth of customers due to the limited number of properties gracing the market. It is really important that you consult a reliable real estate agency to provide you with the best advice related to property deals.
Real estate agents can detect the way the wind blows when it comes to changes in the property market. You can make good use of their valuable experience to navigate the unprecedented situation facing the property market.
