The property market has boomed in the past year despite the economic shock caused by Covid-19, as people reconsidered where they live and sought to lock into low mortgage rates.
But the question is, will the trends driving the market continue into 2022? One of the major factors pushing prices higher over the past year was the stamp duty holiday, which ended on 31 September after being phased out over the summer months.
The cutting of stamp duty on house purchases worth under £500,000, introduced in July 2020, saved buyers up to £15,000, and prompted record numbers of transactions. Yet despite expectations that the ending of the tax break would dampen activity in the housing market, this only prompted a short-lived slowdown.
The aftermath of the stamp duty holiday
UK house prices rose at their fastest pace in 15 years in the three months to the end of November 2021, according to Halifax. Prices rose by 3.4 per cent over the period, the highest quarterly rate since 2006, with the average home worth £20,000 more than a year ago.
The average price of a home currently stands at £272,992, with experts citing several reasons for prices continuing to rocket to record highs.
Anna Clare Harper, chief executive of property consultancy SPI Capital, says: “Many people still want and need to buy a home. We also have a severe shortage of quality housing, and stiff competition among lenders, meaning finance is cheap and widely available.”
Kate Faulkner, market analyst at independent property advice site propertychecklists.co.uk, adds: “People are also realising that trying to ‘time the market’ or ‘get a deal’ isn’t as important now as putting the right roof over their heads during the pandemic.”
Demand and prices in 2022
The market remains extremely strong heading into 2022. According to a Zoopla survey, about 22 per cent of UK households remain ‘eager’ or ‘very eager’ to move home in the next 18 months as a result of the pandemic, as workplaces move towards more flexible, hybrid working options.
Gráinne Gilmore, head of research at Zoopla, says: “As the UK emerges from the impact of the pandemic, so far, buyer demand remains around 20 per cent above the five-year average, while the stock of homes for sale remains lower than average, underpinning house price rises.”
Experts have so far forecasted that house prices will continue to rise, with demand outstripping supply. Zoopla predicts that house prices will increase by 3 per cent in 2022, rising to 4 per cent in the East Midlands and the North West of England. The Royal Institution of Chartered Surveyors (RICS) states that house prices could end the year about 3 per cent to 5 per cent higher than the start of the year.
Lucian Cook, UK head of residential research at Savills, which expects price growth to sit around 3.5 per cent in 2022, says: “We expect to see both house price growth and market activity moderate in 2022, though we do not see any triggers for price falls.”
“Strong earnings growth, low unemployment and a relative shortage of stock should continue to support values.” He adds that the so-called ‘race for space’, which has been a major driver of recent activity, will become gradually less intense.
“Of course, that all assumes we do not see the reimposition of strict social distancing measures,” adds Cook. “The balance of demand is likely to continue to be weighted towards larger homes that offer a separate space to work from home for a little while longer.”
The effect of Covid-19, rising inflation and interest rates
While it’s unclear what effect the omicron variant, any further outbreaks and economic setbacks may have on the housing market, consumer confidence has been dented by the prospect of soaring inflation, predicted to peak at 5 per cent in 2022. That said, possible interest rate rises on the horizon are unlikely to be detrimental to the market, according to experts.
Tarrant Parsons, economist at RICS, says: “All else being equal, higher borrowing costs will dampen demand across the housing market to a certain extent but any movement in rates will be modest and gradual, leaving them close to historic lows, while demand will still be supported by a solid employment backdrop.”
It’s expected that the Bank of England will start to gradually raise rates over the next year, but even if rates rise by 0.5 percentage points, mortgage deals remain extremely competitive, stress brokers.
David Hollingworth, from broker L&C, says: “With the base rate at an all-time low and lenders competing hard for borrowers’ business there may need to be a sharper rise to undermine confidence, and currently it looks like mortgage rates will continue to support the housing market.”
The introduction of tougher mortgage affordability assessments with stress testing in 2014 also means that borrowers should also be able to afford even significant rate rises. This ensures that borrowers can afford mortgage rates at least 3 per cent higher than their deal.
Meanwhile, the Government’s new version of the Help to Buy equity loan scheme will also continue to boost the housing market. At present, it’s expected to run until March 2023, giving first-time buyers struggling to afford a home a leg-up onto the property ladder with a 5 per cent deposit.
Drastic shortage of homes to rent
The past year saw rents rise at their fastest rate for over a decade. Rents in the UK were 4.6 per cent higher in September 2021 than a year before, averaging about £968 a month, according to Zoopla.
“We are seeing some drastic shortages in stock for tenants, who are struggling to find somewhere to live,” says Faulkner, adding that rents are expected to rise in line with inflation into 2022.
“The biggest issue for 2022 is going to be the same for the industry as for consumers: lack of choice due to lack of stock. Unlike those selling toasters and cars, agents have little or no influence on what stock is available,” she adds.
“It’s essential for anyone selling, buying, investing or renting to speak to their local agent to find out what’s happening to the individual property on the street they are interested in.”
Case study
Stephen Hawkins and Chelsea Waines, 29 and 22, are buying their first home. They are currently both living with parents, while they prepare for the move.
If all goes to plan, they will complete the purchase by the end of February 2022. “But we exchanged back in March 2021, so it’s been a long wait after being pushed back because of lockdowns and material shortages,” says Stephen. The couple are buying a three-story four-bed new-build house for £320,000 in the village of Paulton, near Bristol.
He is a sewerage modeller, while she works as a dispenser for a pet pharmaceuticals firm. They have a combined income of £45,000.
“It was the property’s price and location that appealed to us, alongside moving into a blank canvas as a new build – and it’s about the same price as smaller properties that require lots of work. For now, prices are still going up and no-one can say for sure what’s going to happen to the housing market, so we were keen to take the plunge.”
They are putting down a hefty £150,000 deposit from an inheritance and savings. To fund the remainder, they sought help from mortgage broker L&C. They will pay £650 a month for a 25-year £170,000 repayment five-year fixed-rate mortgage at 1.17 per cent with NatWest. “The process of securing the mortgage has been really simple – using L&C took any stress away,” he says.
They were hoping to take advantage of the stamp duty holiday, but the deadline for this passed as the purchase was pushed back. But they are relieved that they are nearly at the final hurdle. “We’re not planning on having kids soon, but the house means we’re now set up and don’t have to worry about moving,” he adds.