UK Housing and Rental Markets Amidst Cost of Living Crisis

Author: Samuel Beckingham
Updated: Nov 23, 2022
4 minutes read

The UK has been battered by many crises in recent years and the housing and rental markets have been greatly affected. How have prices been hit by inflation and the cost of living crisis? In short, rents are now at a record high, mortgage offers at a near 14-year high and house prices have started to fall. All in all, not exactly good news.

Housing Market

The Bank of England raised the Bank Rate to 3% at the start of November with a warning that we might not see growth in the UK for a couple of years. The economy is still partly recovering from Truss’ car crash economic policy announced at the Kamikwasi mini-budget, which spooked the markets, and the Bank Rate has been increased as a way of curbing soaring inflation.

The markets are expecting the Bank Rate to rise even further to 4.5% in May and remain that high for the rest of next year, but worst-case scenarios have eased somewhat since Truss eventually resigned in October. The downside to this is that mortgages will increase by around £3,000 when it comes to people needing to renew their offers as they come to an end. Over 2 million mortgage deals are expected to end before the beginning of 2023 and because of the high Bank Rate, mortgage offers are sitting much higher than in previous years.

In the wake of the mini-budget, the average two year fixed mortgage rose to 6.65% in October, but has now been slightly reduced to 6.35%. Hundreds of banks pulled their mortgage deals from the market at the time and had to re-release them with much higher interest rates, causing concern for millions of people.

What’s worse is that wages have failed to keep up with rising house prices. As of August, house prices are on average 9.45 times the average wage. We’re all too aware that wages haven’t kept up with inflation because of the amount of strike action being threatened across multiple sectors. Borrowing has since become more expensive, thanks to the rise in the Bank of England base rate, and house costs have soared, making it even harder for first time buyers to get a deposit together.

Some sources agree that the housing sector will see a fall in value. Between September and October, Nationwide saw a fall of 0.9% and Halifax reported a fall of 0.4%. The Office for National Statistics showed a decrease of 2.4% between July and August. In more doom and gloom, NatWest has even projected a 7% decrease in house prices next year.

Alongside these higher mortgage rates are the cost of living crisis, high inflation and the energy crisis, as well as rapidly rising rent.

Rental Market

In other news, the rental market has seen a steep increase in demand without an increase in supply. Outside London, the average rent is now £1,162. Within Greater London, this has increased to £2,343, which is 16.1% higher than this point last year. You can see a comparison of rent increases in the UK below.

According to data from Rightmove, specific towns and cities have had an even bigger increase in the average rent asking price. Newbury was at the top of the list, with an increase of 22.5%, followed by Manchester at 20.5%, then Cardiff at 19.6%, Edinburgh at 18% and Birmingham at 17.6%. As costs have increased everywhere and are rapidly spiralling out of control, this has been worrying for renters.

The number of evictions for renters has increased by 10% between July and September and people are calling on the government to offer targeted support for those struggling to pay. Possession claims have more than doubled in the past year as well, adding more cause for concern for those not on the property ladder.