There’s no doubt 2021 was a bumper year for house prices. According to the latest ONS House Price Index, prices increase by nearly 11% year on year. The UK property market was buoyed by low interest rates, the Stamp Duty holiday and changing work habits. But will house prices continue to rise in 2022?
Ross Counsell, chartered surveyor and director at Good Move, doesn’t think so. In fact, he “strongly believes that house prices will finally begin to fall this year.” That would be welcome news for first-time buyers and upsizers.
I’m going to take a closer look at the outlook for house prices in 2022, and reveal the experts’ predictions.
House prices boomed in 2021
The ONS reported a strong end to 2021, with the average house price reaching £275,000.
Wales posted the highest growth of 13%, with England and Northern Ireland the lowest at 11%. London continued to experience the lowest regional growth at 5%.
What could weaken house prices in 2022?
Ultimately, house prices are a function of supply and demand. So what are the possible headwinds for property prices in 2022?
1. Soaring inflation
Inflation increased to 5.5% in January, its highest rate in nearly 30 years, and it’s forecast to exceed 7% by June. High inflation increases the price of everyday items such as petrol, energy and food.
In turn, this reduces the level of disposable income to support mortgage payments. Counsell believes that “Many Brits will have to tighten their belts financially” and “may not be able to afford” to move home.
2. The end of ultra-low interest rates
The Bank of England increased the base rate to 0.5% in January. According to Capital Economics, it’s likely to raise it further to 1.25% by the end of the year (which would be the highest rate in 14 years). The knock-on increase in the cost of mortgages would dampen housing demand.
3. Easing of supply issues
Limited supply helped to drive up house prices at the end of 2021, with the professional body Propertymark reporting the lowest-ever supply of houses on record. However, they recorded an 80% increase in housing stock in January, which should help to ease supply constraints.
Housing supply is also likely to be boosted by an exit from buy-to-let properties, as landlords have been squeezed by increased regulation and tax hikes. A survey by SimplyBusiness found that 20% of landlords are planning to sell their property. With an estimated 4.5 million privately-rented properties in the UK, this could have a sizeable impact on supply.
4. Pulling forward of transactions in 2021
Rightmove’s Tim Bannister commented that “It’s been a hectic 18 months” with “changed housing needs driven by the pandemic inspiring many moves, and the Stamp Duty holiday encouraging some movers to bring their plans forward.”
The ONS reported sales volumes of 200,000 in June 2021, three times the number in June 2020. Demand is expected to return to a more normal level in 2022, which should have a cooling impact on property prices.
What are the experts’ predictions for house prices in 2022?
The experts agree that the housing market will stabilise in 2022, after the exceptional impact of the pandemic. According to Lawrence Bowles of Savills, it’s “unlikely we would ever see a repeat of the conditions that led to last year’s price growth.”
However, the experts also acknowledge a high degree of uncertainty over house prices in 2022, with inflation and interest rates forecast to rise to their highest levels in over a decade.
So what do the experts predict will happen to house prices?
- Tim Counsell of Goodmove expects “prices to fall towards the middle of the year and into the later months of 2022.”
- Russell Galley, managing director of Halifax, believes that “growth will be broadly flat during 2022.”
- Tim Bannister, director of property data at Rightmove, expects a slowing in the second half of 2022, as “base rate rises, higher inflation and higher taxes begin to weigh more heavily on buyer sentiment.” He predicts a 5% increase in house prices in 2022, with a more muted 3% growth in London.
- Zoopla forecasts a 3% increase in house prices.
Takeaway
If you’re a first-time buyer or looking to buy a larger house, it may be worth waiting to see whether property prices start to fall over the next few months.
In the meantime, our mortgage calculator is a useful tool for finding out how much you can borrow. We’ve also produced a guide to mortgages to help you navigate the process of choosing a mortgage.
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About the author
Jo is a writer specialising in personal finance and investments. She is a qualified Chartered Accountant, previously working in M&A at a UK investment bank and Arthur Andersen. Jo has written on a range of subjects, from in… Read More
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