How the war in Ukraine could affect UK property

March 2, 2022 / Isla MacFarlane
How the war in Ukraine could affect UK property

While the state of the UK property market pales in significance to the human tragedy unfolding in Ukraine, experts are already questioning how the shockwaves will hit UK property and energy prices.

“We are mindful of the growing risk of an economic impact as a result of the tragic conflict in Ukraine,” Dean Finch, Group Chief Executive of Persimmon, said in the housebuilder’s financial results, and he’s far from alone. Vistry also acknowledged the “shocking events in Europe and the attendant political uncertainties.”

The Russian invasion of Ukraine has intensified competition for energy, as countries who import from Russia begin to look elsewhere. The consequences of this could pour cold water on house prices and fuel soaring energy prices and inflation, as well as economic uncertainty.

Karen Noye, mortgage expert at Quilter, said: “The war in Ukraine may put the brakes on ever increasing prices. Energy prices were already soaring prior to the conflict but with Europe now looking to find alternative energy sources from outside Russia, costs are likely to go even higher. This squeeze on people’s everyday finances will naturally make them think twice before embarking on the expensive process of moving and risk becoming less financially stable at a very uncertain time.

“How house prices truly react to the Russian invasion won’t be seen for a few months, but it seems unlikely that prices are robust enough to cope with the unfolding crisis especially against the backdrop of an economy trying to recover after the pandemic.

“The prospect of rising inflation and rising interest rates will also take the wind out of the sails of the market as cheap mortgage deals will likely be no more. Those who have already secured a fixed rate mortgage may well be grateful they have. For those looking to buy, increased rates are likely to make a house move, or the purchase of a first home, that much more unaffordable.”

Tomer Aboody, director of property lender MT Finance, added: “Of course, the terrible war in Ukraine cannot be ignored, and how this might impact the UK. With purses already squeezed as the cost of living rises, the Bank of England might reconsider at its proposed interest rate increases in forthcoming months, in order to minimise the hit on consumers.”

However, the forces that govern the UK property market are unlikely to be affected, as the supply/demand imbalance remains firmly entrenched. Early anecdotal evidence suggests that the conflict will have a limited impact on the UK’s appetite for property.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “It is probably too early to gauge the likely impact of the war in Ukraine on the housing market but not much if the first few days are anything to go by. We have already agreed several sales at fairly robust prices this week. The expected additional rise in the cost of living driven by energy prices and possibly interest rates will reduce confidence to take on extra debt and make buyers even more determined not to overpay.”

Noye added: “There is a chance that house prices plateau rather than drop. Until housing stock is meaningfully replenished by the government and the big housebuilders, house prices will remain high as there is simply still too much demand and too little stock.”

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