We live in uncertain times and yet some things seem unerringly inevitable. Inflation feels like one of them.
The sad events unfolding in Europe do nothing to ease the pressure on energy prices and ultimately household budgets.
Inflation means interest rate rises and so mortgage rates will go up accordingly. Out of the pandemic frying pan into the inflationary fire it seems; pay your mortgage or keep warm and eat will the question for many.
And yet there is some cause to think that there are other forces at play that may offer some light relief to homeowners.
In the FT recently, Nicolai Tangen, chief executive of Norway’s $1.3tn oil fund, said he expected prolonged inflation to “ hit bonds and shares at the same time . . . for the next few years.”
As equities and other asset classes deteriorate however, others gain. Gold and bricks and mortar are two such ‘safe haven’ assets.
Property generally is an incredible hedge against inflation. As the cost for goods and services increases, so does housing, often far faster than the rate of inflation.
Today’s incredibly robust house price growth isn’t an anomaly, it’s due to the permanent undersupply of suitable stock – our well documented national housing shortage.
There is no plan to correct this anytime soon either. While the Stamp Duty holiday is now a distant memory, the demand from this tax exemption is still sustaining the UK property market and people still want more space to accommodate changing lifestyles and different working patterns.
According to JLL, property prices could see up to 4.5% increases over the next 10 months, and the next five years could see property prices 20% higher than they are now.
Small wonder UK housing is an attractive asset for global real estate investors and continues to turn heads around the world.
Investment banks, who largely concur with Mr Tangen, are eyeing UK property. There are at least six new mortgage lenders waiting to go live in the UK adding to an already to what many believe is an overpopulated space.
In a market that is roundly expected to equate to the 2019 lending volumes, that means more competition for borrowers’ business. Whilst delivering keener rates it will also herald a move down the credit curve with consequences of both for borrowers and their lenders.
You might think we have been here before and economics does move in cycles. But the regulation is different now and although the FPC is consulting on loosening the LTI limits for lenders, this may all be helpful to stretched borrowers who need a little help.
Property has never gone out of fashion but the exceptional period of the last two years has pent up demand and the inflation we are witnessing now will fuel higher prices and more lending.
However, for lenders, recovering their money from borrowers in default has never been more difficult or important politically.
Mark Davies is the managing director of BCMGlobal
