Having defied expectations in 2020, the housing market continued to boom throughout 2021.
Property prices once again went through the roof, with the latest estimate from Halifax suggesting an 8 per cent increase over the year as a whole – more than 2020’s 6 per cent.
The typical home in the UK is now worth £272,992, according to the mortgage lender: a rise of £20,757 in the past 12 months, and almost £34,000 higher than before the start of the pandemic.
When it comes to house prices, what goes up must not necessarily come down – but it is looking increasingly likely that prices will at least grow slower next year.
House prices have hit record highs since the start of the coronavirus pandemic. However, this growth could start to tail off in 2022 due to stretched budgets and higher mortgage rates
There are plenty of factors weighing on this, from pressure on household budgets to increasing mortgage rates and the incentive of the Government’s stamp duty holiday being taken away.
While it may come as a disappointment to homeowners who have enjoyed watching their equity grow, this is not necessarily bad news.
First-time buyers or those seeking to trade up the housing ladder may find it easier to get want they want in a less heady market.
And it would also mean the tough competition, intense bidding wars and frustrating administrative delays buyers have experienced in the past year and a half could ease slightly.
This is Money looks at what could happen to the housing market in 2022, as well as asking property experts for their top tips for buying and selling.
Will house prices rise, fall or stay flat?
As happens most years, agents are predicting a ‘Boxing Day bounce’ where both buyers and sellers spring into action during the post-Christmas lull as they start to make plans for the year ahead.
However, after the New Year rush dies off, many say house price increases could start to look subdued compared to the highs of the past couple of years.
It would be hugely surprising if house prices continue to rise at such an accelerated pace in 2022 as they have done over the past 18 months
Tomer Aboody of mortgage lender MT Finance
This is due to a combination of factors. Household budgets will be stretched due to rising inflation and renewed pandemic uncertainty; mortgage interest rates are edging up; and the stamp duty holiday which inflated prices for most of 2021 is no longer in place.
‘It would be hugely surprising if house prices continue to rise at such an accelerated pace in 2022 as they have done over the past 18 months,’ says Tomer Aboody, director of mortgage lender MT Finance.
‘As interest rates and inflation rise, house price rises will be more muted. Affordability will become more of an issue and buyers will feel less bullish than they have done.’
As for how much price increases will slow, the jury is still out. House price indexes have predicted anything from 0 per cent to 5 per cent over the year – though none of them were brave enough to suggest that prices would fall.
This was despite several indexes recording month-on-month drops in the later months of 2021.
The latest official figures show the cost of a home has spiked in the last 18 months
|Forecaster||Latest average house price||Latest annual % increase||Latest annual £ increase||Predicted % rise in 2022|
|Halifax||£273,000||8%||£21,000||0% to 2%|
So should would-be buyers hold off until price growth eases?
For many, things will even out. If they get less for the home they are selling than they would have in 2021, the property they move to will probably also be cheaper.
But Mark Hughes of Pure Property Finance suggests that those planning a substantial trade up the ladder may be advised to wait.
‘We’re currently in, what I think, is a property price bubble,’ he says. ‘Nobody can predict the exact movements of 2022 in terms of the housing market, but I think it’s fair to say that if you’re currently in a home where you’re safe and financially stable, not to move just yet.
‘For those moving up the property ladder, their next purchase is likely to be more expensive than their previous property, meaning more finance is needed and, in this situation, the only people that will win are the mortgage companies.
‘Potentially, if you hold off selling for a few more months, you may get a few more thousands of pounds for your property, as well as the property market being more predictable.’
How will different regions be affected?
The pandemic has turned regional property trends on their head.
Usually buoyant London saw house prices grow only slightly as, perhaps no longer needing to go to the office every day, buyers flocked to more off-the-beaten-track locations.
The UK regions benefited from this, and in particular there was a rush toward beauty spots, including rural and coastal locations.
According to Zoopla, Liverpool saw the highest rate of house price growth in 2021 at 10.7%
In September, for example, the Office for National Statistics reported that homes in Wales had increased by an astounding 16.5 per cent on the year. The average home there went over £200,000 for the first time ever in 2021.
The same month, London recorded price growth of just 2.8 per cent, below inflation.
Other regional winners included the East Midlands, South East, South West and North West.
Zoopla said house prices would not grow as rapidly in 2022, predicting an overall 3% rise
The fact that many buyers have already made their move could serve to dampen demand slightly in these markets. But experts say prices are still set to increase into 2022, only less dramatically.
‘Price movements for country properties have had a catch up, having seen limited movement since 2008,’ says Dominic Agace, chief executive of Winkworth estate agents.
‘Now people are returning to cities and we have had this price growth, I think there will be less price appreciation.
‘[However] I would expect very limited supply to ensure it prices still rise around four per cent in country markets in the South East and South West.’
Salford Quays, Manchester: Property buyers started to return to cities in recent months as covid restrictions eased, but the Omicron variant could put the brakes on this trend
As workers returned to offices in the autumn of 2021, cities saw prices recover slightly – though the effects of the Omicron variant could serve to halt this.
Agace was confident about the capital, however, suggesting that central London homes could see prices increase by 5 per cent in 2022, and those in the London suburbs by 3 per cent.
John Ennis, Foxtons managing director for Central London and new homes, said he predicted growth of 1 to 3 per cent in London.
Top tips for home buyers in 2022
Property experts had the following advice for those seeking to snap up a new home in the new year.
Be flexible on moving dates: Being willing to compromise on their completion timeline makes a buyer attractive to the seller. Says Hyman: ‘We have had instances where the buyer has agreed to buy the property and lease it back to the seller at a peppercorn rate in order to secure their dream property’.
Check the cost of renovating: The cost of building materials has rocketed in 2021. Le Pard says: ‘For those planning a refurbishment job, I’d check your costs very, very carefully. You want to be sure you can afford the extension you want before committing to the purchase.’
Lock in a cheap mortgage: ‘I’d buy early [in 2022] and lock in a cheaper fixed mortgage rate sooner rather than later. Mortgages are likely to get more expensive over the course of the year,’ says Le Pard.
Consider renting to be a ‘power buyer’: It is still a sellers’ market, and sellers like a buyer without an onward chain. ‘Consider putting yourself in the best possible position to move quickly should your dream house arise. This could mean moving into rental in your dream area,’ says Agace.
Be realistic: In a tough market, buyers might not get everything they want, so they need to prioritise what is most important to them. ‘Buyers need to manage their expectations as to what is viable and what constitutes their dream home,’ says Aboody. ‘Not every box will be ticked’.
The ONS’ latest figures, those recording sales in October, also suggest an improvement in the capital’s fortunes, with prices increasing by 6.2 per cent in the previous 12 months.
However, others are less optimistic. James Hyman, head of residential at property consultancy Cluttons, says that, in some parts of London, prices could fall by as much as 10 per cent next year.
For anyone looking to move out of the capital and buy elsewhere, Hyman suggests doing so as quickly as possible.
‘My advice to anyone thinking of exiting the London market is to do so as soon as possible in the first part of next year,’ he says.
‘After that, we could see prices drop as much as ten percent depending on the geography.’
What impact will Omicron have on the market?
Rather than having a dampening effect on the property market, the pandemic has so far served to spur on activity.
‘It almost feels to me like the more lockdowns we have, the more people want to move,’ says Adrian Anderson of agent Anderson Harris.
Before the Omicron variant of Coronavirus emerged and brought with it talk of more restrictions, property experts claimed that some of the property trends seen in the early days of the pandemic were reversing.
Buyers preferred houses to flats during lockdown, but this trend began to reverse later in 2022
For example, those selling flats struggled during the pandemic, as buyers were on the look-out for homes further away from city centres with more space.
But recent signs pointed to a resurgence, as workers were increasingly needed in the office.
The price of the average apartment increased by 10.8 per cent in the year to November, according to the latest Halifax house price index, while detached properties were up only 6.6 per cent.
Top tips for home sellers in 2022
With far fewer homes on the market than there are buyers, sellers are in a strong position. However, if they want to get the best price they cannot afford to be complacent. Cluttons’ Hyman offers the following tips for sellers:
Listen to your agent about pricing: There is a fine line between what price will generate interest and what won’t. It’s all about footfall: price your property too high, and you will not generate the necessary viewings to sell it.
Make sure you have a home office space: All buyers expect this since the pandemic, even it if it is just a drop-down desk area within a cupboard.
… and good broadband: Make sure you have the best broadband possible, both in terms of supply and connectivity throughout your house. Get a technician if required.
Make the most of your garden: Lockdown has placed even more importance on outside space, so if you have a garden or roof terrace get a gardener or landscaper in and make a real feature of it.
However, whether this trend continues will depend largely on the severity of the new Omicron wave.
If people end up working only from home for extended periods – or even being in lockdown – there could be a renewed desire for bigger homes with outdoor space, as seen in previous lockdowns.
As the impact of Omicron is not clear at this point, opinions on this subject are divided.
‘I can see the flat coming back in favour to an extent,’ says Sam Le Pard, co-founder at broker and advisory firm Lexi Finance. ‘City-centre living will always have an appeal to young people and commuters.’
‘Omicron will have less of an impact than the first waves of covid-19 purely because we’ve seen it before and the economy is better-placed to cope with restrictions.’
With many staff still uncertain about how often they will need to be in the office in the long term, some experts are predicting that wealthier families could opt to move out of the city, but retain a ‘crash pad’ to stay in when necessary.
Ennis says: ‘Many families are choosing to move out of London to Surrey, Berkshire and along the M4 corridor, but are buying a small ‘crash pad’ in the capital to use on the days that they work in the office.’
Will the supply shortage end?
Another reason house prices soared in 2021 was that there were many more buyers than there were homes being listed for sale.
This led to intense competition and bidding wars, with some even selling their home and renting to give them the edge in the eyes of the seller. These were known as ‘power buyers’.
‘Lack of supply governed the 2021 housing market, with our latest data revealing that nationally there are currently 19 buyers for every newly listed home,’ says Nick Leeming, chairman of estate agent Jackson Stops.
Property buyers could find there are more homes on the market next year, say experts
This was a self-fulfilling prophecy, as fears of not being able to find a suitable new home put off would-be sellers from putting their own houses on the market.
This is likely to ease in 2022, according to experts, but perhaps not until later in the year.
‘An increase in new listings, fueled by homeowners realising the extent to which their properties have risen in value over the last two years, will convince these previously cautious vendors that there are viable onward properties,’ says Leeming.
‘We should therefore see a steady flow of new stock coming to market by the second half of the year.
Rising interest rates could dampen demand
Another driver for house price increases in 2021 was the availability of extremely cheap mortgages.
After interest rates increased at the start of the pandemic, those with big deposits or lots of equity enjoyed months of record lows from summer 2021. This later trickled down to the middle market.
Fixed-rate mortgages even went sub-1 per cent in some cases, with the lowest rate recorded being 0.84 per cent.
But following the Bank of England’s recent decision to increase the base rate from 0.1 per cent to 0.25 per cent, the direction of travel has reversed and lenders have been hiking their mortgage rates.
For those with a 40 per cent deposit, the lowest fixed rate available is currently 1.11 per cent.
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While the difference in monthly payments now may be slight, there could be further rate increases in 2022. However, any changes are predicted to be small and gradual.
Agace says: ‘The challenge to buyer demand going forward will be interest rate rises, however, early signs are that these will be moved up very slowly and so will remain at historic lows in 2022 and so have a limited impact on buyer demand.’
The exception, for now, is first-time buyers, who are now seeing rates fall after they remained stubbornly high for the first year of the pandemic.
First-time buyers may find it easier to get on the ladder in 2022. Mortgage rates are as little as 1.63% on a 10% deposit deal, although saving up for a deposit is increasingly tough
The lowest-interest fixed-term deal on a 10 per cent deposit mortgage, for example, is 1.63 per cent with Yorkshire Building Society. This comes with a £995 fee.
And according to Moneyfacts’ early December data, the average two- and five-year fixed rates for those with 5 per cent deposits fell for the eighth consecutive month.
At 3.09 per cent and 3.39 per cent respectively, these averages are the lowest on Moneyfacts records going back to 2011.
Next year is also the last full year that first-time buyers are able to benefit from the Government’s Help to Buy scheme.
That said, these rate decreases will not last forever, and borrowers with small deposits could also see rates rise in the near future.
And in addition, stagnating salary growth means saving for a deposit is increasingly tough.
With things changing quickly, Anderson says it is more vital than ever that buyers know what mortgage they can expect to get approved for, and how much it will cost, before they embark on their property search.
‘Speak to an independent mortgage broker before you commence your search so that you know your mortgage capacity and maximum purchase price and get an agreement in principle.
‘I am still staggered by the number of enquiries we receive from potential borrowers who have spent months searching for their dream home only to find out that their borrowing capacity is not what they presumed.’
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