Home Sweet Home: UK housing market expected to stabilise in 2022 after a year of record highs

January 19, 2022

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3 min read

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What's going on here?

As we enter 2022, experts believe that the new year could see a more stable housing market in the UK. This follows the market’s boom in 2021, when a frenzy of sales and purchases drove prices to unprecedented heights.

What does this mean?

In 2021, the UK housing market had a bumper year: roughly 1.5m house purchases were made across the UK. In December, average UK house prices reached a record high of £276,091, according to the latest House Price Index from Halifax. This was a 1.1% increase on the previous month, and December was the sixth consecutive month in which UK house prices rose. Annual house price inflation stood at 9.8% in December, the highest level witnessed for 14 years. As a result, average property prices were £24,500 higher at the end of 2021 than they were at the end of 2020. This rise was partly driven by an imbalance between supply and demand. According to Propertymark, there were, on average, only 20 homes available per estate agency branch by November 2021. This is the lowest record figure for two decades. Consequently, November saw 38% of homes sold for a price higher than the asking price. Experts were surprised to see such a market boom, considering we spent the first half of 2021 with lockdown restrictions in place.

However, experts believe that 2022 will see a return to a market which more closely resembles its pre-pandemic status. Zoopla’s Director of Research, Richard Donnell, expects house sales to “decline by 20% from their high of 1.5m in 2021, to 1.2m in 2022. House price growth is expected to be 3% by the end of 2022, with the highest growth projected for the east Midlands and north-west England, while growth in London is projected to remain low at 2%”.

What's the big picture effect?

There are a number of reasons for 2021’s house-buying frenzy. There was a stamp duty holiday introduced in July 2020, that did not end completely until 30th September 2021. This encouraged lots of people to consider moving or to bring forward a planned move. Coronavirus restrictions also contributed. The move to online, at-home working which the pandemic initiated in 2020 continued into 2021. As a result, many people felt able to relocate without compromising their work. After all, why would someone pay a premium for a tiny flat in the centre of town if they are only required to be in the office one day a week? Suddenly a house in the suburbs with a garden seemed much more appealing.

Considering we are still very much living with the impact of the pandemic, why do experts anticipate market stabilisation in 2022? There has been an increase in the number of property owners requesting valuations, suggesting that more properties will soon enter the market. This will help to redress the imbalance between supply and demand, thereby slowing the spike in prices. The end of the stamp duty holiday has removed the incentive which accelerated many sales in 2021. A steady rise in mortgage rates could also discourage potential buyers. The Bank of England raised interest rates from 0.10% to 0.25% last month. A general increase in outgoing expenses as a result of inflation, which hit 5.1% in November, could mean people are less likely to consider themselves able to shoulder the financial burden of moving or buying property for the first time in 2022.

However, there are also several factors which point towards property becoming more accessible to first-time buyers in 2022. As well as benefitting from a more stable market, better supply and lower prices, first-time buyers might also find it easier to get a mortgage in 2022. The Bank of England has revealed that it is considering removing the affordability stress test element of its mortgage application procedure. This test requires potential borrowers to prove that they would be able to afford their mortgage repayments even if interest rates rose by three percentage points. The removal of this test could make mortgages, and thus property purchases, more accessible.

Report written by Elizabeth Ambrose

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