What Impact Could Inflation Have on the Property Market?
Written on 25 February 2025 by
The Office for National Statistics (ONS) has reported that inflation has eased in recent months, but the cost of living remains a key concern for households across the UK. As of December 2024, the Consumer Prices Index (CPI) rose by 2.5% over the previous 12 months, down slightly from 2.6% in November. The Consumer Prices Index including owner occupiers' housing costs (CPIH) remained steady at 3.5% during the same period.
While inflation has come down significantly from its peak, many households continue to feel the strain of rising prices. Housing and household services saw an annual inflation rate of 6.0% in December 2024, up from 5.8% the previous month, with owner-occupier housing costs reaching their highest level since 1992.
This can be witnessed through continued pressure on household budgets, driven by elevated energy prices and supply chain challenges. Geopolitical concerns, particularly those relating to Russia and Ukraine, continue to influence energy markets and could have long-term effects on energy supply stability.
How Is the Bank of England Responding?
The Bank of England (BoE) recently adjusted its approach to tackling inflation. In February 2025, the Monetary Policy Committee reduced the Bank Rate by 0.25 percentage points to 4.5%, reflecting signs that inflationary pressures are easing. This marks a change from the previous stance, where interest rate hikes were used to curb inflation.
In late 2021 and throughout 2022, the Bank of England implemented multiple base rate increases in response to rising inflation. However, as global economic conditions shift, the focus is now on maintaining stability and supporting economic growth.
For borrowers, these interest rate adjustments will have a direct impact on mortgage rates. Some homeowners on variable or tracker mortgages may see slight reductions in their monthly payments, while those looking to secure new fixed-rate mortgages may find lenders gradually adjusting their offerings.
What Does this Mean for the Property Market Moving Forward?
The rising cost of living and ongoing economic uncertainty are key factors influencing homebuyers and home movers decision-making. Many prospective buyers are now weighing up whether to proceed with a purchase or wait for further stability. The impact of inflation on wages, combined with higher household expenses, may influence borrowing decisions and affordability assessments.
According to the latest ONS data, UK house prices increased by 3.4% in the 12 months to October 2024, up from 2.8% in September. While house prices are still rising, growth has slowed compared to previous years, suggesting that the property market is stabilising.
With affordability remaining a key concern, we may see a lower volume of property transactions in the coming months as buyers adopt a more cautious approach. The overall market direction will largely depend on how inflation trends evolve and whether further economic policies are introduced to support homeownership.
How Could Lenders Respond to Changing Economic Conditions?
Lenders typically review their affordability calculations on a quarterly or semi-annual basis, often relying on data from the ONS to determine borrowers’ spending capacity. However, with living costs continuing to fluctuate, there is potential for lenders to reassess their affordability models more frequently.
Currently, affordability assessments are based on income, debt-to-income ratios and overall market conditions. Some lenders already factor in rising living costs, while others primarily assess affordability based on income rather than daily expenses. If household costs remain high, we could see lenders introduce more cautious affordability criteria to ensure mortgage repayments remain sustainable.
Is Now a Good Time to Buy or Remortgage?
For potential buyers and homeowners looking to remortgage, market conditions will play a significant role in decision-making. With interest rates now showing signs of stabilisation, some borrowers may want to secure a competitive fixed-rate mortgage before any further changes occur.
For those uncertain about affordability, seeking expert guidance is essential. A mortgage broker can help you navigate lender criteria, compare available deals and find the most suitable mortgage option based on your individual circumstances.
How Could the Property Market be Impacted by Inflation Conclusion
The UK’s economic landscape continues to evolve, and while inflation is no longer at its peak, the cost of living remains a challenge for many households. With the Bank of England adjusting interest rates, property prices stabilising, and lenders reviewing affordability criteria, now is the time to seek expert advice to ensure you’re making informed financial decisions.
If you’re considering your options - whether buying, remortgaging, or simply looking for clarity on the market - speaking to a mortgage broker can help remove uncertainty and provide the best possible advice.
Get in touch today on 0808 149 8381 or enquire online.
Categories:Housing Market, Nicholas Mendes
