Rising inflation in 2022 and what it means for your property - and your pocket

Inflation topped 9% in April and has continued rising through May. We explore...

Your buying power becomes less and less with the same amount of money. So, what to do?

Inflation, in a nutshell, means people's money is not going as far as it used to. To simplify, if the cost of a litre of milk was £1 and then rises by 5p, milk inflation is 5%. You may not notice these price rises month to month but they’re happening and they contribute to the overall increase to the cost of living. In fact, right now, prices are rising so quickly that average pay is not keeping up. It was March 1992 when inflation reached 7.1%. 30 years later, uncomfortable parallels are emerging and inflation is expected to climb above 7% this year. We look at the reasons for these price hikes and how it will affect UK property and the money in your pocket…

Why are prices increasing?

One of the main reasons for these price hikes is the rising price of energy. This has meant higher energy and transport bills for businesses, many passing on these extra costs to their customers. Another factor is the higher shipping costs which continue to hurt businesses and these costs are, again, passed to the customer. Staff shortages have been a particular problem as of late, due to Brexit and the fallout from the pandemic, and are prompting some employers to raise wages for their staff. This can contribute to inflation as businesses aim to cover increased labour costs.

Did house prices also increase in May?

According to Rightmove, the average price of property coming to market has hit a new record for the fourth consecutive month, rising to £367,501. This month’s increase of 2.1%, which is £7,400 in cash terms, is the highest at this time of year since May 2014, and means prices have jumped £55,551 in asking prices in the two years since the housing market shut due to the pandemic. This compares to a rise of just £6,218 in asking prices in the two years before the pandemic.*

Is your property worth more than you think?

What else could affect the cost of living throughout 2022?

One of the stories that hit the headlines back in March was the gas and electricity price hikes – bills rose in April and we're set for another rise in October. Regulated rail fares in England increased by 3.8% in March, as well as TV and broadband prices. In April, companies, workers and the self-employed started paying 1.25p more in the pound in National Insurance contributions. Rising interest rates will make mortgage payments higher for some homeowners who have chosen a variable rate that follows the Bank of England base rate.**

Is investment in property a good way to combat inflation?

There are three main reasons why property ownership can really help to fight and even help you profit from inflation.

1. Appreciating value

One of the most beneficial aspects of property investment is appreciation. Over the past 12 months, house prices have increased by almost 10%. Putting your money in an asset that will benefit from capital growth is a wise move.

2. Rising rents

For the landlords and budding property investors out there, one of the best aspects of a turnkey buy-to-let is the immediate cash flow generated from tenants. Smart investments in property could also generate a modest (and sometimes not so modest) monthly rental cash flow.

3. Depreciating debt

Just as your property is appreciating in value, the debt owed on the property is actually depreciating in value with the rate of inflation. Your £650 mortgage payment in year one is worth £650. However, in 10 years, with inflation, that debt is going to be worth far less. Of course, for specific advice on this which factors in mortgage interest rate changes, we'd always recommend speaking to a property specialist or accountant.

Should I sell my house now or wait and see what happens?

It’s difficult to know whether more of a market equilibrium could develop in the coming months. Rather than trying to play the market, it’s a good idea to consider the cards you currently hold. We know now is a good time to sell because buyer demand is at an all-time high and stock levels of property are low. Selling in summer 2022 could mean cashing in when the market is undeniably great for selling.

How much is your home worth?

*Rightmove House Price Index May 2022