What will happen to house prices in 2022?

Driven by the stamp duty holiday and changing buyer demands, 2021 saw unprecedented growth in house prices across the UK. Both Halifax and Nationwide reported record increases, with the average property rising in value by around 10%.

Wales was, by far, the strongest-performing region, seeing increases of circa 14% – with London at the bottom of the table, at just 4%.

However, experts have forecast much cooler results for 2022, as a number of factors take effect; but, in the wake of global uncertainty about almost anything, they are adding cautiously optimistic caveats to their predictions.

Russell Galley, Managing Director of Halifax, expects house price growth to remain positive, but slow down:

“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation and increasing pressures on household budgets suggest house price growth will slow considerably. Our expectation is that house prices will maintain their current strong levels, but that growth relative to the last two years will be at a slower pace. However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”

Galley makes a good point in his last sentence; the reality is, whilst predictions can be made , they could be wrong. For example, in a press release in December 2020, Galley stated that there would be “downward pressure” on house prices in 2021.

Our expectation is that house prices will maintain their current strong levels, but that growth relative to the last two years will be at a slower pace.

RUSSELL GALLEY, MANAGING DIRECTOR, HALIFAX

Nationwide has a similar outlook to Halifax, stating that the end of the stamp duty holiday – combined with the ongoing effects of Covid on the housing market and higher interest rates – will likely have an impact on property values.

Robert Gardner, Nationwide’s Chief Economist:

“It appears likely that the housing market will slow next year, since the stamp duty holiday encouraged many to bring forward their house purchase in order to avoid additional tax. The Omicron variant could reinforce the slowdown if it leads to a weaker labour market. Even if wider economic conditions remain resilient, higher interest rates are likely to exert a cooling influence. Indeed, house price growth has outpaced income growth by a significant margin over the past 18 months and, as a result, housing affordability is already less favourable than before the pandemic struck.

“However, the outlook remains extremely uncertain. The strength of the market surprised in 2021 and could do so again in the year ahead.”

House price growth has outpaced income growth by a significant margin over the past 18 months and, as a result, housing affordability is already less favourable than before the pandemic struck.

ROBERT GARDNER, CHIEF ECONOMIST, NATIONWIDE

Zoopla have been bullish enough to put a figure on house price growth in 2022, predicting a rise of just 3%. The property website cites a number of factors which could see the housing market through the headwinds of the coming year, with buyers able to look further afield as working from home becomes more prevalent.

Their research shows that 22% of homeowners currently want to move; the figure usually stands at around 5%.

They also predict that house price growth will be strongest in the East Midlands and North West, with London forecast to report the weakest growth.

The latest data shows a turning point in the rate of house price growth, which we expect to slow quickly with average UK house prices up 3% by the end of 2022.

RICHARD DONNELL, EXECUTIVE DIRECTOR, ZOOPLA

Finally, Rightmove predict slightly greater inflation in 2022, stating that they expect to see a 5% increase in house prices over the next 12 months, due to demand continuing to outstrip supply.

In contrast to rivals Zoopla, Rightmove predicts that Scotland, the West Midlands, the South West and Yorkshire will see the highest inflation, forecasting a 7% rise, with London experiencing just 3% growth.

 Price rises will be slower this year, compared to 2021, which will encourage some homeowners who have held back on moving to take action.

TIM BANNISTER, DIRECTOR OF DATA SERVICES AND OVERSEAS, RIGHTMOVE
So, what’s the verdict?

Everyone seems to agree that the level of growth in 2021 was unpredictable. Inflation was seen across all regions, driven by the stamp duty holiday and buyer demand for rural locations.

However, despite demand outstripping supply and buyer transactions rising to near-pre-pandemic levels, there are some key economic fundamentals which will undoubtedly have a dampening effect on the housing market.

The Bank of England recently increased the base rate of interest to 0.25%, and it could rise further over the next 12 months. This will likely result in higher mortgage costs for homeowners, potentially causing mortgage lending to drop significantly; although, with fewer homes coming onto the market following the spike in transactions in 2021, mortgage approval times could return to pre-pandemic levels. This lack of supply versus a stable level of demand, however, should shore up house price inflation, which means it is unlikely that property values will decrease.

Slower house price growth could see a increase in the number of first-time buyers, as affordability improves slightly. And – despite interest rate rises – with the Bank of England set to relax affordability tests and the likely return of low-deposit mortgages forecast this year, more buyers could finally realise the dream of owning their own home in 2022.

But, if there’s one thing we have all learned over the past two years, it’s that you just don’t know what the future holds. It’s best just to wait and see…

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