It’s never simple to make forecasts. The Bank of England warned in May 2020 that the coronavirus pandemic might cause housing values to drop by as much as 16 percent. Homeowners, who were already dealing with an unprecedented scenario, braced themselves for even more uncertainty after hearing this news. The property market, however, continues to defy expectations, according to the latest statistics from our Halifax House Price Index as free no-obligation house valuation enquiries were still rising. Despite the pandemic’s impact on the UK economy, average house prices increased by 9.8% in 2021, a gain of nearly £24,500 – the highest annual cash increase since March 2003.
Is it possible for such growth to continue through 2022?
Coronavirus is still active in the UK as of this writing, with the hospitality industry being particularly vulnerable to the current Omicron form. Simply put, nothing can be taken for granted, despite great advancements in vaccination rollout and less limitations around the country.
What’s causing the rise in home prices?
The UK government has implemented a variety of efforts in the last 24 months to assist mitigate the pandemic’s severe impact and boost the economy. The most significant for the housing market has been the Chancellor’s introduction of the Stamp Duty Land Tax (SDLT) vacation, which exempts buyers who complete a home transaction for less than £500,000 on or before July 1, 2021, from paying stamp duty. Those purchasing properties beyond the threshold, on the other hand, would only be subject to tax on amounts exceeding £500,000.
These steps, when paired with the pent-up demand caused during lockout periods, would have surely boosted activity in 2020 and 2021. We also saw a considerable number of transactions spurred by the ‘race for space,’ as purchasers sought larger residences with greater space due to home-working and long periods at home in general. We anticipate that pandemic-related changes in housing preferences will extend well into 2022.
Spending habits have an impact
Changed spending patterns during the epidemic, in addition to government assistance, have helped prospective home purchasers to save more money for higher deposits. The market continues to seem strong as a result of these factors, but there are still hurdles ahead. The Bank of England has already taken one interest rate hike to battle increasing inflation, and we expect more in 2022. (albeit remaining at historically low levels).
House price rise is projected to slow in the coming months as a result of this, as well as further financial stresses on consumers, such as increasing energy expenses.
With all of this in mind experts believe that house prices will remain robust over the next year, but that growth will be much slower in 2022, at roughly 1%.
Looking forward
Aside from property prices, we believe additional developments will affect the market in 2022. It’s apparent, for example, that difficulties of affordability will continue to crop up.
Indeed, soaring inflation and historically low loan rates meant that many first-time buyers were obliged to save for larger housing deposits than they had anticipated throughout the pandemic. However, the good news for first-time buyers in 2022 is that 95 percent mortgages are once again available. Despite rising inflation and interest rates, average rates on those mortgages hit a new low in 2021, and they are still at low levels in January 2021.
Rising house prices, on the other hand, are a problem in many regions of the UK, with two-thirds of the public (67 percent) saying that the UK housing market isn’t assisting people in finding cheap and good-quality housing in their area.
Furthermore, both homeowners (60 percent) and renters (72 percent) feel that house prices are the most pressing issue confronting the market right now, and they are sceptical that the housing industry will be able to produce competitively priced, high-quality homes during the pandemic.
The House of Lords Built Environment Committee has already called for restrictions to housebuilding to be lifted, particularly for SMEs, in order to help enhance housing supply. It is anticipated that sustained political and corporate focus on how to assist more people in obtaining affordable and decent housing.
We can also expect a lot of discussion about how the industry can help both old and new homes fulfil the UK government’s sustainability goals.
Indeed, for a long time, energy efficiency has been a popular topic among developers. With more laws on the coming, fulfilling new environmentally-friendly criteria while also meeting the desires of homebuyers will be a constant challenge. Lenders are increasingly concentrating their efforts in this area, so expect to hear about new products on a frequent basis throughout the year. It’s also becoming more important for homeowners, who, aside from the cost savings, could profit from the fact that, according to our research, properties with the highest energy ratings are currently worth up to £40,000 more on average than those that are less sustainable.
However, as we previously stated, making solid forecasts in the context of a pandemic is challenging. It’s crucial to note that whether house prices rise or fall this year is determined by a variety of factors, including the coronavirus and its potential influence on the economy. When buyers realised there was an endless supply of potential buyers, they began to raise property prices. Despite frequent volatility, property values rose from the middle of 2020 to the end of October 2021. According to a few industry projections, costs will continue to rise modestly until declining by the end of 2022. Based on the present real estate market, determining property prices is simple.
The offers on mortgage loans and low-interest rates were the primary motivators for people to come forward and invest in real estate. Apart from these developments, numerous lenders and local banks established a variety of lending programmes to entice more purchasers to invest in London real estate. However, in 2022, this situation may not persist long. Mortgage loans will vary in accordance with the return to normalcy in the home purchase business. By the beginning of 2022, interest rates may have returned to their normal range.