What 2022 may hold for UK house prices

Without the help of a crystal ball, it can often be tricky to predict the future. This has been especially true since the start of the pandemic, when there has not only been the economic fallout of the virus to consider, but also the impact of the government’s interventions.

Often, the housing market can be especially difficult to predict as there are so many independent moving parts. For example, few experts would have predicted such strong growth in property prices in 2020, as the UK economy experienced such a significant contraction.

That being said, with enough information it is possible to have a good idea of what the coming months will hold for the housing market. If you’re curious about what 2022 may hold, read on.

2021 saw strong house price growth due to high demand and government incentives

As we discussed in a previous article, there are three main factors that influence the housing market:

• Consumer confidence
• Interest rates
• Supply and demand.

In 2021, they combined to fuel strong growth in property prices.

While many people’s confidence had been shaken by the economic impact of the pandemic, it was buoyed by the government’s support for the housing market.

The Stamp Duty holiday, implemented by chancellor Rishi Sunak in 2020, meant that buyers could save up to £15,000 in tax when moving home. This was obviously a major incentive for many of the people who were considering, but unsure of, buying a house.

This holiday helped to support the housing market through much of 2021 and, even when it ended in September, growth in prices remained strong. According to figures from Halifax, published by the BBC, the average property had increased in value by 9.8% by the end of the year.

Furthermore, interest rates remained at their historic low of only 0.1% until December, when the Bank of England raised them to 0.25%. In February, the Bank then increased the base rate again, to 0.5%. There was also significant demand as many workers who could work remotely reassessed their living arrangements, with many moving out of towns and cities.

However, while 2021 enjoyed strong house price growth, recent economic developments may mean that this is about to change.

The cost of living crisis may mean that prospective buyers could struggle to afford a mortgage

One of the biggest threats to the housing market is the recent cost of living crisis. This means that buyers could have a more difficult time demonstrating they can afford a mortgage, as their outgoings have increased. Furthermore, this may also negatively impact their confidence, making them more hesitant to move.

Many people are currently experiencing a significant increase in living costs, including food prices and energy bills. According to figures from the Guardian, energy bills for households could increase by up to 50% from April, due to the high price of gas.

To make matters worse, increases in wages have not kept pace with the rate of inflation. This means that many households are having to tighten their belts, which is a problem for prospective buyers as they may struggle to save up for a mortgage deposit.

Russell Galley, the managing director at Halifax, was quoted in the Guardian as saying that while the market “defied expectations” last year, this may be derailed due to the cost of living crisis.

“This situation is expected to become more acute in the short term as household budgets face even greater pressure from an increase in the cost of living and rising interest rates begin to feed through to mortgage rates,” Galley said.

This issue is likely to especially impact younger buyers, who may have less financial resilience and haven’t had as long to build up their wealth.

Increases in interest rates may make mortgages more expensive

Another change which may affect the housing market is the recent spike in the rate of inflation. According to figures from the Office for National Statistics (ONS), the Consumer Price Index rose to 5.4% in the year to December 2021.

While a small amount of inflation can be a good thing, too much can have a negative effect. This is why the Bank of England raised the base rate to 0.25% in December and then 0.5% in February.

This rise is also likely to have a knock-on effect on lenders, who may raise the interest rates that they offer to their customers. This means that mortgages may become more expensive, which could lower demand.

While this increase may only seem small, the BoE has hinted that there could be further increases on the horizon if inflation lasts for longer than they expect. If interest rates rise by too much, it could lead to a large reduction in the number of buyers, as they struggle to pass affordability checks.

If this happened, it could cause a buyer’s market as sellers would have to lower prices in order to make their home more attractive. Of course, this is only a worst-case scenario but while house prices may not fall, it is likely that growth will slow in 2022.

For example, estate agents Zoopla predict that property values will only grow by 5% in the coming year. Similarly, according to the Guardian, the Royal Company of Chartered Surveyors predict low growth of around 3% to 5% in 2022.

While this is less than ideal news for homeowners, a slowdown in the growth of house prices could present opportunities for many first-time buyers to take their first step onto the property ladder.

Get in touch

2022 may offer many opportunities for prospective buyers, so if you’re looking to move home, we can help. Email us at office@verve-financial.com or call 0330 320 5048.

Please note:

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Commercial and some Buy-to-let mortgages are not regulated by the FCA.

Commercial mortgages are on a referral basis.

Think carefully before securing other debts against your home.