Property market booming in 2021, but are we heading for a 2022 bust?

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Looking at the latest UK property market figures, you’d be forgiven for forgetting that we’re coming out of a pandemic that’s had a severe effect on the economy. For the property market is boomin’, baby! 

Record property sales in 2021

Real estate conglomerate Zoopla has predicted that 2021 will close with 1.5 million home sales concluded – the highest number recorded since before the financial crash of 2007 and five times higher than 2020. 11% of these sales took place in September 2021. The Government’s monthly property transactions report estimates that a total of 165,720 UK residential properties traded hands in September 2021, 67.3% higher than September 2020 and 59.7% higher than August 2021.

When digging into the data, we see that it’s not only the total number of sales that have increased but also the average price seeing an uptick. According to the Office for National Statistics, the average UK house price was £264,000 in August 2021, £25,000 higher than in August 2020.

Interestingly though, if we hone in on specific areas, London property prices are growing at a far slower rate than anywhere else in the country. This hints at the anecdotal evidence that Londoners are fleeing city life, favouring larger properties with bigger grounds and gardens. Properties located between 10 and 25 miles from central London have continued to increase in price.  

So, it’s clear that the property market is experiencing a flurry of activity and growth, but why? What’s the impetus here?

Factors driving a surging property market

Stamp duty tax holiday

First and foremost, we can thank Rishi Sunak and his decision to give stamp duty a holiday as we emerged from the first pandemic lockdown last summer. Stamp duty kicks in when a property is sold for more than £125,000 with various tiers of tax depending on the property price. Initially, Rishi upped the 0% threshold to a generous £500,000, saving buyers up to £15,000 in taxes. In extending the holiday until 1 October 2021, he reduced the exemption to £250,000, but this still offered plenty of incentive for buyers to take advantage. This goes a long way to explain the flurry of sales activity in September!

Rethinking what ‘home’ looks like

During the lockdowns, the ‘stay home’ guidance led to much mulling over what’s desired in a home. With the ‘threat’ of being homebound and potentially even working from home for an extended period, people – especially families – sought out more spacious homes with larger garden areas. There’s also little doubt that spare rooms that doubled as home offices or studies became a primary selling point.

Low-deposit mortgages make a comeback

After a hiatus coinciding with more prudent lending through the pandemic, low-deposit mortgages especially appealing to first-time homebuyers made a reappearance from April 2021. Many were able to take advantage of both the low-deposit mortgages alongside the stamp duty holiday.

So, while those factors have helped prop up the property market throughout pandemic times, where to next?

Are we headed for a property market bust in 2022?

Against the backdrop of a buoyant property market in 2021, there are several factors that, when combined, have the potential to trigger a notable market bust in the coming year.

  1. The end of the furlough scheme means that swathes of employees may face redundancy if businesses can’t bring them back at full salaries.
  2. Rampant inflation rates are increasing living costs, pushing up food and energy bills, and eating away at disposable income.
  3. Growing concerns about an imminent interest rate hike, and likely further increases in 2022, will directly impact mortgage costs.
  4. The 1.25% increase in National Insurance contributions kicks in from April 2022, meaning that the average employee will be paying an additional £255 a year in taxes.
  5. Anticipated increases in council tax add to rising living costs and dwindling disposable income.

Experts are predicting that it’ll become increasingly difficult for first-time buyers in particular to get on the property ladder in the coming year. As a result, we’ll likely see a slowdown in the property market, with both the numbers of transactions and increases in prices easing off. That said, there’s still a massive surplus of demand compared to demand, and estate agents are desperate for suitable stock for keen buyers.

Securing a mortgage

If you’re still looking to secure a mortgage for your next home purchase, the time to act is now!

Our handy debt-to-income ratio calculator is an excellent place to start to understand the state of your finances from the lenders’ perspective. A healthy debt-to-income ratio will put you in a better position to secure a mortgage.

Meanwhile, our mortgage calculator will give you an indication of how much you can afford to borrow.

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