Why British house prices will suffer side effects from Russia’s invasion of Ukraine

The British property market is already grappling with rapidly rising inflation, successive interest rate rises and the cost of living crisis. 

There could also be further pressure on British house prices thanks to the conflict in Ukraine and the resulting economic fallout.

While Britain has very limited direct trade links with Russia, the conflict will inevitably have a wide, indirect economic impact.

Andrew Wishart, of Capital Economics consultants, said: “The main economic linkage would be higher natural gas prices. We think a conflict would keep inflation higher for longer and potentially bring forward some rate rises.”

Faster interest rate increases would quicken the housing market slowdown that many analysts have forecast this year as mortgage costs would increase.

Capital Economics expects Bank Rate to peak at about 2pc, said Mr Wishart. But this would still push average mortgage rates to 3.2pc – double the 1.6pc rate recorded at the end of 2021.

In turn, the share of median income needed to cover a mortgage on an average priced home would rise to 45.5pc. This would be a huge jump from the 37.4pc required at the end of later year and would be the highest level recorded since the financial crisis in 2008.

“Earlier rate rises may mean house price growth cools a bit earlier,” said Mr Wishart.

‘Aberdeen could be a surprise winner’

Rising oil and gas prices will bring widespread pain for consumers, but one Scottish city could see house price rises as a result.

Aberdeen’s local economy and property market is heavily dependent on the oil and gas sector.

Gavin Bain, who runs an eponymous solicitors and estate agents firm in Aberdeen, said: “Anything that results in the under provision of gas and oil will benefit Aberdeen because there will be more demand for North Sea oil.”

The local market is still recovering from the oil price crash between 2014 and 2016, when the price of Brent crude fell to $34.74 per barrel. House prices fell by 25pc, said Mr Bain while rents on flats fell by 30pc.

“A two-bedroom flat that used to let for £850 per month now gets £575,” said Mr Bain.

A rising market would mean buy-to-let landlords would be the first to feel any benefits. “If more people come to work in Aberdeen, there will be more demand for rental accommodation. And there are fewer rentals available because so many landlords have offloaded,” said Mr Bain.

But any impact would be slow because it would be dependent on how quickly oil companies decide to hire more staff, he said. “The oil firms are far more cautious than they ever were before.”

Prepare for a drop off in Russian buyers

The most immediate impact of the conflict and subsequent sanctions on Russia will be a fall in demand from Russian buyers in Britain. Historically, these buyers have been concentrated in the capital’s priciest neighbourhoods.

“There could be a bigger impact on the prime central London market,” said Mr Wishart.

But it will still be small. Back in 2014, Russian money was a huge player in London – so much so that The Washington Post dubbed it “Moscow-on-Thames”. But then Russian demand nosedived.

Russia introduced restrictions on money leaving the country, Britain increased the costs of its “golden visa” programme, tightened anti-money laundering rules and introduced a string of stamp duty changes, which penalised overseas buyers in the most expensive property markets.

Today, Russians are no longer among the major buyer groups even in the capital’s priciest postcodes. David Fell, of Hamptons estate agents, said: “Even in prime central London, the Russian buyer share is a rounding error at most really.”

Some Russian money still flows into Britain via companies located overseas. But a Freedom of Information request made to the Land Registry at the end of 2021 showed that only 1,127 properties were owned by a company with a Russian correspondence address last year. The top three local authorities for these owners were Westminster, Liverpool and Tandridge, Surrey.

But the 1,127 total was less than a 20th of the number of titles owned by companies based in Hong Kong, which ranked first in the index. Russian companies ranked 35th.

The Russian buyer share is already only nominal, and any fall in Russian buyers is unlikely to have any impact on property values.


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