Buyers already tightening their belts, says leading agency

Buyers are already tightening their belts and choosing not to borrow as much as they could, but instead calculate what they can afford to repay when inflation and cost of living challenges worsen later this year.

That’s the belief of Knight Frank, which says single-digit house price growth may be on the horizon as borrowers are becoming more prudent because of higher inflation.

Simon Gammon, head of Knight Frank Finance, says: “People are beginning to push themselves less. They are asking how much they can afford to repay per month rather than how much they can borrow overall.”

Banks will become more cautious themselves as higher outgoings feed through into bills, he suggests.

“Some people have started to curb how much they borrow but in six months’ time they may not have that choice.”

This mood of caution chimes with research released today by the Home Builders Federation, which found buyers are increasingly concerned about the energy performance of the property they are buying as a result of spiralling fuel costs.

“The pandemic has brought a period of eyebrow-raising house price growth” adds Tom Bill, head of UK residential research at Knight Frank. “Supply is tight, demand is ferocious and mortgage rates are low, but the clock is ticking for buyers and sellers.”

Bill believes that the return of the base rate to 0.75 per cent last week is another step closer to normality for the UK property market. The last time the rate was as high was in March 2020, before the pandemic triggered a prolonged stamp duty holiday, a supply squeeze and double-digit house price growth.

It is premature to say prices will now slow down notably but Bill says that an annual increase of 12.6 per cent recorded by Nationwide as recently as in February doesn’t feel like it has a long shelf-life, particularly when you factor in the cost-of-living squeeze.

The agency says that for the moment supply is still short in many areas and competitive bidding means properties are frequently selling for over the asking price. Demand is particularly fierce in the capital as the return to the office gathers pace.

The same is true in many markets outside of London although the “escape to the country” trend has become less frenetic than during the height of the pandemic.

“If a good property comes on at a good price, it will sell under competition,” said James Cleland, head of Knight Frank’s country business. 

“However, it’s no secret that there are more headwinds out there and buyers have become slightly more realistic. For owners thinking about bringing their property to the market, it means the next few months represent a window of opportunity while demand remains so high.”