Pressure placed on household finances may make it harder for people to purchase property, reminding us of the importance of a housing model that offers flexibility for people to opt for homes that meet their current needs.

Last month HSBC was in the news after it was mooted to be considering a tightening of mortgage affordability criteria in response to the rising cost of living. The expectation of other mainstream residential lenders potentially following suit has stoked fears that some would-be buyers will be priced out of the property market.

This would have significant implications for the private rented sector (PRS) and highlights how the UK’s housing tenures are interlinked.

Figures published by the Office for National Statistics revealed how in December of last year, UK inflation increased to 5.4%, its highest rate in 30 years. The increase in the consumer price index was attributed to the rising price of everyday items.

Perhaps the most concerning of these is the spiralling cost of energy, with the price of oil recently hitting a seven-year high and wholesale gas prices reaching record levels before Christmas.

While energy is very much a market influenced by global supply and demand, UK consumers are anticipating no change in fortune, with energy regulator Ofgem scheduled to raise the cap placed on energy bills in April, leaving some to forecast up to 50% higher costs.

These rising energy bills will coincide with higher National Insurance contributions, also planned to come into force in April, adding to the squeeze on household finances that is forecasted to continue throughout 2022 by Bank of England Governor Andrew Bailey.

Even with wages propped up by record high numbers of job vacancies, the increase in the cost of living will all but cancel out any growth in what people are paid.

The result is that those saving will have less to put away each month after paying their bills. Sharp increases in property purchase prices have already dented deposits, making them now worth less as a proportion of the total amount borrowed, and will be increased by smaller increments, if at all.

Those looking to climb onto the property ladder could be utilising rented accommodation for longer, increasing demand already under pressure due to constricted supply. Hometrack’s Rental Market report, published at the end of last year, revealed that the availability of properties to let is 43% below the five-year average.

This restricted availability is placing pressure on rents with The Deposit Protection Service (DPS) figures showing how UK rents rose for the fifth consecutive quarter in Q4 2021. Given that landlords will be subject to the same increase in living costs as the rest of us, paying more to heat and maintain their portfolios, it is likely that this pressure on rents will increase.

This highlights how, while supporting those with homeownership aspirations, we should remember that privately rented homes are relied on by a broad mix of people, including those looking to buy, those who may never be able to afford to buy and those that don’t want to.

With talk of the PRS being subject to tax increases and changes to EPC regulations that have the potential to result in substantial costs for landlords, it is this cause and effect that should be considered when we’re developing policy aimed at improving housing in the UK.

The property market both impacts and is impacted by the wider economy and any resulting changes often have an influence that is felt across all tenures. For this reason, it is vital that tenures are not pitched against each other, but instead seen as different solutions for a diverse population.

Richard Rowntree
Managing Director for Mortgages