The tragedy of the conflict in Ukraine has been making headlines for several weeks now. Aside from the human misery we see unfolding before our eyes, it is also becoming clear that there will be considerable economic repercussions. How might the UK property market be affected?
Even before the start of the conflict, UK inflation was running at a 30-year record of 5.5% in January this year. The rise in energy prices that is occurring as a direct result of the conflict will put further upward pressure on inflation. To mitigate this, it is widely believed that the Bank of England will raise interest levels at their next interest rate meeting on March 17. A base rate rise is likely to lead to a subsequent rise in mortgage rates, with predictions that the average rate may rise to around 3.2%. The days of cheap mortgage deals appear to be over.
The dual effect of both higher living costs and higher mortgage repayments will likely have a dampening effect on demand as would-be property buyers have to tighten their belts. Nobody is predicting a slump in property prices, but the consensus seems to be the already widely predicted slowdown in house price inflation will be reinforced. The long-standing supply/demand imbalance in the UK housing market will, however, continue to support prices.
There is a lot of discussion around the possible effects on the central London property market of the sanctions being applied by the UK government on the Russian economy. Some property market analysts are predicting that the freezing of the assets of a growing number of Russians oligarchs with links to Putin will lead to their mass exodus from the luxury London property market, with a resulting collapse in prices. Certainly, as things stand at the moment, nobody with Russian nationality is purchasing property in the UK as they are worried that, irrespective of their political allegiance, potential future blanket sanctions on Russian investment in the UK may negatively affect them.
However, there is a competing belief that even if there were to be a major exodus of Russian money from the London property market, the impact would not be that significant. The amount of Russian owned property has already fallen since its 2014 highpoint, with the latest Land Registry figures showing that only just over a thousand properties in the UK are owned by Russian nationals.
Estate agents operating in the super prime sector report that Russian buyers have been in the minority for some time, with investors from countries such as Brazil, India and China taking their place. They point out that whatever might be happening in the world, London retains its reputation as a safe haven for global wealth, especially in times of crisis.
Furthermore, the stock of luxury London property remains low, which will further act against a depression in prices. With such a rapidly evolving situation, the long-term effect of events in Ukraine must in truth remain unknown. Everyone fervently hopes that a peaceful resolution will be found soon.
“London retains its reputation as a safe haven for global wealth, especially in times of crisis. Furthermore, the stock of luxury London property remains low, which will further act against a depression in prices.”