The UK’s prevailing macro-economic trends are putting all markets under pressure, and property is no exception.

The interlinking challenges of an impending recession, rising interest rates and high inflation have sparked fears of a downward correction in house prices — what some would call the bursting of a bubble that has expanded notably over the past two years.

Uncertainty is thick in the air for property investors, homebuyers and brokers — and the variety of factors at play makes it tough to anticipate price behaviour and trends in the volume of activity. However, we do have touchstones from recent broader economic headwinds, in which the property market performed well, to help lay out the path through this tricky housing market.

Rigid structures are often ill suited to turbulent climates

Rising interest rates, in particular, are expected to dampen the high demand we have enjoyed over the years. In parallel, the impact of inflation on investors’ appetite is yet to be seen. Optimists will argue the market’s performance during the pandemic underlined the sector’s ‘safe haven’ reputation as a reliable asset in volatile times; pessimists will say the remarkable growth since late 2020 owed as much to other incentives and represented a less urgent crisis of liquidity among high-net-worth individuals.

However the market shapes up in the next year between these two positions, it is certain that lenders must be proactive in addressing concerns and facilitating fluidity within the market wherever possible.

New chancellor Kwasi Kwarteng has pledged an economic strategy focused “entirely on growth” — his mini-Budget on 23 September dominated the headlines with several unforeseen policies. The Autumn Budget in November will solidify the direction the new prime minister, Liz Truss, and Kwarteng plan to take.

Unforeseeable reactions

Naturally, making precise predictions about the months to come would be foolish. We do not know how people will respond to the cost-of-living increase in their energy bills, or indeed the pinch of inflation in general. How, for example, will rising inflation and interest rates affect demand for property in prime central London compared to the rest of the country?

Brokers and borrowers will seek a wide range of options to navigate the property market amid rising rates and inflation. Open dialogue is very important

Lenders and brokers must invest time to understand and monitor these trends. The pandemic has shown how foolish it can be to generalise about how people or groups will react to different challenges.

For instance, we will have to see how the stamp duty cuts influence the market in the remainder of 2022 and into 2023. More generally, we know that perennially low housing stock across all elements of the UK’s residential property market will mean that an uptick in buyer demand could push prices higher and higher.

But there are other pertinent questions as to how best to support buyers and brokers. For me, there are positives from the fact that prospective property buyers have greater choice than ever. Increasingly competitive mortgage and specialist finance industries have given borrowers an unprecedented variety of products and lenders. As interest rates continue to rise in lockstep with inflation, this innovation is likely to go further.

The variety of factors at play makes it tough to anticipate price behaviour and trends in the volume of activity

Lenders have a duty to support existing clients as well as cater for new ones. Indeed, providers should be alert to the need to better support their clients, some of whom may be worried about keeping up with repayments. Direct and proactive communication is key here — helping borrowers understand the economic climate and engaging in discussions about how, as a lender, you can support them will go a long way towards determining how each business comes out of this period.

Then comes the challenge of working with brokers and borrowers on new deals. Here, rigid methodologies and a lack of flexibility will stymie how useful a lender can be. With uncertainty hanging overhead, it is important to assess individual circumstances and needs, taking extra time to consider the best solution.

There are positives from the fact that prospective property buyers have greater choice than ever

The wider industry will, I suspect, be minded to take a leaf out of the more nimble specialist finance sector’s book, offering greater tailoring to individuals and more flexibility on affordability. Rigid structures for assessing client needs and working with brokers are often ill suited to turbulent climates like this one.

Refinancing products, longer-term fixed rates, short-term loans — brokers and borrowers will seek a wide range of options to navigate the property market amid rising rates and inflation. Open dialogue is, therefore, very important.

Alpa Bhakta is chief executive of Butterfield Mortgages Limited