Real estate impacted by cost of living: discussion by Fortem Property

Darren Bennett, co-founder of multi-discipline real estate company, Fortem Property, discusses the current impact of the cost-of-living crisis on real estate.

There is no doubt that ordinary Britons have started to feel the effects of the rising cost of living, and it seems entirely logical that this should eventually translate into lessening consumer confidence.

Strained household budgets will limit people’s capacity to pay higher rents or to commit to bigger mortgages, so the likelihood is that average values should start to grow at a slower rate than over recent, record-breaking months.

That said, growth rates – in terms of both capital values and rents are still running exceptionally high and, together, those returns should stay comfortably ahead of the rate of inflation. In other words, property should remain a rewarding asset that performs better and more reliably than most other options currently available in the country.

Darren Bennett, Fortem Property director and co-founder

Darren Bennett, co-founder of Fortem Property, commented:

“Demand for homes is still exceptionally high and supply is still well below the usual industry norms, so the market’s two fundamental forces still look set to drive long-term price growth.

“It’s an argument that most lenders and agencies seem to agree upon, as we’ve seen in their various comments and explanations this month, and we can expect the same broad trends to continue.

“One other piece of good news is that although inflation is currently running at a 40-year high, it doesn’t seem well-entrenched.

“The Bank of England is confident that it can bring it back down to around +2.0% in 2024 and, already, we have seen falls in the wholesale costs of many commodities including fuel, metals and food.”

Many of the UK’s inflationary pressures have resulted from high costs in international supply chains, which have partly been a consequence of the global economy taking time to normalise after successive Covid lockdowns. That now seems to be happening, and it’s coinciding with falling demand from manufacturers concerned about a forthcoming global recession. That, too, is causing commodity prices to fall.

Consequently, aside from the war in Ukraine, which remains an exceptional factor, there are few ‘structural’ reasons why high inflation should persist beyond the next couple of years. As the rate drops back to around +2%, the returns typically delivered by residential property should translate into significant and sustained real-terms growth.

For more information on the cost of living and the impact its having on real estate visit us here.

Kindly shared by Fortem Property

Main photo courtesy of Pixabay