UK average house prices have hit a new record. The average asking price has surged to £360,101 – representing a £19,082 increase over the past three months. Alongside this, 53% of properties are selling at or over their final advertised asking price. The continued rise of property prices, combined with rising interest rates and inflation, has caused anxiety within the property world and worries of a market crash mirroring 2008 are prevalent. David Hannah, Group Chairman of Cornerstone Tax, predicts property prices will continue to increase but states we will not see a crash any time soon.

The persistent growth of UK house prices can be attributed, mainly, to the shortage of homes for sale. The supply and demand levels in the UK property market remain unbalanced with buyer inquiries 65% above the ‘more normal’ market of 2019. The nature of the open market for UK property has attracted not only domestic purchasers and investors looking to buy, but also inbound investors and people looking to relocate to the UK. David Hannah sees this as a factor causing continued higher demand than the supply rate for properties.

The crash of 2008 happened, predominantly, because of a sudden loss of liquidity on the international banking market, but Hannah says we aren’t in that situation again. The constant increase of house prices is caused by demand – coming from people who have cash or property offers to spend. This indicates that there is still a reasonable amount of liquidity in the property market. Hannah expects wages to be raised, in line with inflation, allowing spending power to not decrease.

David Hannah, Group Chairman at Cornerstone Tax discusses why there won’t be a crash in the UK property market:

“I don’t predict a property market crash in 2022. The surge in demand, even with rising interest rates, has represented an adequate amount of liquidity, which is a good sign. The crash of 2008 happened because of a sudden loss of liquidity in the international banking market and we aren’t in that same situation again. We have had the pandemic, and substantial government spending because of it which has increased interest rates. But the question has got to be – will the global lending system be able to maintain the liquidity that it lost in 2008? And I think the answer is yes it will. We are certainly not going to see, as some people have predicted, 20, 30 or 50% falls in UK housing.

“If we look at what has been going on – house price growth, retail inflation, energy costs surging, that’s going to put pressure on employers to raise wages. I believe wages will rise, meaning real spending power will not actually decrease. If you borrow a hundred thousand pounds today, the fixed figure of one hundred thousand pounds doesn’t rise in line with inflation. So, in five years time that debt is probably worth half what it is today. In high inflationary times with relatively low interest rates, it makes sense to borrow. The debt is being eroded by inflation, whereas the value of the asset (the house) is actually going up in line or ahead of inflation. It’s a way to make real returns

“The problem we do have is the rate of demand and supply. If builders are building and they’re over supplying, it will soften the increase and the appreciation in asset value. But, if the number of people wanting to buy houses continue to exceed the supply, then those prices are going to rise.

“We have an open market in the UK which means not only are domestic purchasers and investors looking to buy but we have inbound investors. We also have quite a number of people relocating to the UK. Overall, I expect demand for UK housing to continue to outstrip supply – pushing price increases ahead of inflation and provided wages are increased, the affordability of housing will stay in lockstep.”