WHEN will the housing market begin to exhibit the effects of the economic malaise the UK finds itself in?

It is a question that has begun to attract its share of attention in recent weeks, as house prices have continued to increase while consumer confidence has tumbled on the back of surging inflation, and recession has loomed into view.

Talk to housebuilders and they will (unsurprisingly) tell you the market remains in good health, and point to a long-running trend of demand outstripping supply.

The market has certainly sailed through the pandemic thus far, having roared out of lockdown in 2020, when people with cash to spare set their sights on bigger properties that were better able to accommodate working from home, and offered outdoor space.

In Scotland, Innes Smith, chief executive of Elgin-based Springfield Properties, signalled his optimism over market conditions last week as the firm announced arguably its most audacious acquisition yet.

Springfield acquired the housebuilding division of historic Glasgow firm Mactaggart and Mickel, which has been building homes in the west of Scotland for nearly a century, in a deal worth £46.3 million.

It was the latest in a series of swoops by the Highland firm on major housebuilders as it has expanded throughout Scotland in recent years, with Mactaggart and Mickel joining a list of scalps that already included Dawn Homes, Walker Group and Tulloch Homes.

When asked if he had any concerns about the outlook for the market, in the context of the Bank of England having gradually raised base rates from 0.5 per cent in February to 1.25% in June to combat surging inflation, Mr Smith replied: “The housing market has strong fundamentals, the housing deficit remains and there will always be demand for good-quality homes.

“If there are challenges ahead then the pay-as-you-go structure of this deal, with payments made to Mactaggart and Mickel as homes are sold, will allow us to manage that.

“We believe our plans are robust for the future and we are definitely well positioned to continue our growth.”

Mr Smith added: “The rising costs of living, particularly [the] increased costs of running a home, demonstrate how important the supply of good-quality, energy-efficient homes is and we are working hard to maintain margins and build a greener product that will be cheaper for our customers to run.”

Aberdeen-based Stewart Milne Group was similarly upbeat a few weeks earlier when it published its latest results in May.

Speaking to The Herald, chief executive Stuart MacGregor acknowledged the challenge the increasing cost of living was posing households.

But while he noted that people will have felt the first effects of the surge in household fuel prices and the rise in national insurance contributions from April, Mr MacGregor said the company has continued to see “strong reservation rates since the turn of the month”.

He said: “I am not denying it is challenge for many people. Although mortgage rates have increased, they are still relatively affordable. In the areas in which we operate, which is Scotland and north-west England, although house prices have undoubtedly increased, they are still amongst the more affordable regions of the UK. If you were in London at the moment it would be a very different equation.”

However, with fears of recession, and inflation forecast to rise above 11 per cent later this year (official figures showed annual UK consumer prices index inflation increased to 9.1% in May), is it realistic to expect house prices to keep growing apace?

Is it not inevitable that the market will begin to feel the chill if the UK economy slams into reverse and people see their incomes fall further and further behind inflation? Surely demand for homes will be dented by the rising cost of borrowing.

A closely watched index due to be published today should give us a sign as to how the market is responding to the worsening economic climate.

The last time Nationwide published its house price index, on June 1, the building society reported that May had seen a tenth successive monthly increase in house prices, with annual price growth remaining in double digits in percentage terms.

But while prices did grow, there was evidence that the pace had slowed. Nationwide found annual UK house price growth had slowed modestly to 11.2% in May from 12.1% in April.

Of course, the growth in May was still robust, especially when considering that it took the average price of a house to £269,914. But although Nationwide said the market continued to be supported by a strong labour market and a low stock of homes, it did say that it expects the growth to slow as the year progresses.

“Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high,” said Nationwide chief economist Robert Gardner. “Measures of consumer confidence have already fallen towards record lows.

“Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

Observers of the housing market will be eager to read what Nationwide has to say in its latest report today. There is certainly no obvious reason why the narrative it set out four weeks ago will have changed dramatically; if anything, its verdict on the outlook may have become more cautious still, such is the depth of the UK’s economic malaise and the expectation that recession could be imminent.

Moreover, even if the Nationwide index published today does indicate that growth has slowed further, it is unlikely to mean that prices will suddenly become a lot more affordable for large sections of the population.

The price of a house is a much higher multiple of earnings than it used to be thanks decades of market growth.

This is especially true for young people, who have never found it so hard to get their first foot on the property ladder.