The Impact of Inflation on the Housing Market: A Painful New Reality

The COVID-19 pandemic has shaken up the global economy in ways that were previously unimaginable. One of the most affected sectors has been the property market, which is now facing a reckoning in Britain. Many experts believe that the house price plunge has only just begun, and that the consequences of the pandemic will be felt for years to come. This article examines the current state of Britain’s property market, the factors that are contributing to its decline, and what this means for homeowners and would-be buyers alike.


The high inflation rate creates difficulty for policymakers in dealing with the strain on the housing market if the values fall drastically. In contrast to the past, where the Bank of England could reduce interest rates and minimize the decline, this time, with the current inflation rates, such an option is not feasible. According to Muellbauer, the current situation of the housing market is similar to the downturn that occurred in the early 1990s, where the bank had similar limited ability to decrease rates. During this time, the house prices reduced considerably, and the downturn was more prolonged than that of 2008. Even if the housing market avoids these specific risks, it still needs to adjust to the new painful reality. Today, with the mortgage rates slightly above 4%, as compared to 6% in 2022, buyers have 20% less to spend, even when opting for the best available deal. Richard Donnell claims that to maintain the same buying power today, buyers would require a mortgage rate at 2.5%. The housing market has started to recover from the mini-Budget, but it needs to adjust to the new reality of higher interest rates that are here to stay.


As the pandemic continues to wreak havoc on the global economy, the property market in Britain is proving to be no exception. The once-thriving industry is now facing a reckoning, with house prices set to plummet in the coming months. While this may be difficult news for homeowners and property investors, it also presents an opportunity for those looking to get onto the property ladder. As the market shifts towards a more balanced state, buyers may find renewed hope in their search for affordable homes. Ultimately, only time will tell how the market will respond to these unprecedented times. However, one thing is for certain – the house price plunge is only beginning, and the future of Britain’s property market remains uncertain.