What 2022 could mean for the housing market

In recent months, the housing market has enjoyed very strong growth, driven by the demand for homes. Back in July, the Guardian reported that the number of homes changing hands had actually hit a record high.

So, while 2021 was a good year for house prices, many people are wondering what the new year will hold for property values.

According to figures from the Office for National Statistics (ONS), house prices rose by 11.8% in the year to September 2021. This was excellent news for homeowners, but many people want to know whether this growth will last.

Whether you’re looking to buy or sell a property this year, it’s important to keep an eye on the state of the market. Read on to find out what 2022 may bring.

A combination of economic factors led to a surge in house price growth

In recent months, the housing market has enjoyed strong growth, despite the economic impact of the pandemic and subsequent government restrictions. As you may remember, this surge was largely sparked by the economic conditions of the first lockdown.

One of the first factors that caused a frenzy of activity in the housing market was chancellor Rishi Sunak’s announcement of a Stamp Duty holiday. People buying a home during the holiday paid significantly less Stamp Duty than normal – zero in many cases – which incentivised many people to move.

Secondly, the lockdowns and social distancing measures made it difficult for construction companies to build more houses, resulting in a reduction in supply.

Furthermore, this problem was exacerbated by the disruption of global supply chains, making it hard to buy building materials.

According to figures from the Guardian, the cost of steel and copper have risen by 40% and timber has risen by 80%.

Finally, the rise of remote working made many people reconsider what they wanted from their home and encouraged them to move.

These trends caused a significant increase in housing market activity and house prices rose accordingly. What’s more, they largely continued into 2021, meaning that property values have been benefiting from strong growth for more than a year now.

Although there were some concerns that the end of the Stamp Duty holiday and furlough payments would cause a market crash, the extension of both schemes helped to avert this.

The Bank of England may have to raise interest rates further to tackle inflation

While the housing market has enjoyed strong growth for a significant period now, this could be about to change.

In recent months, there has been a sharp uptick in the rate of inflation, and this could pose a problem for the housing market.

According to figures from the ONS, the Consumer Price Index including housing costs (CPIH) rose by 4.6% in the year to November2021.

This is more than double the Bank of England’s intended target of 2%, which is concerningly high. As you may know, inflation eats away at the spending power of money, so that over time it is worth less.

To fight this, the Bank of England has already increased interest rates to 0.25% and may have to raise interest rates again, as this encourages people to save more of their money instead of spending it. However, while this could help to curb inflation, it may have a significant impact on the housing market.

If interest rates rise, it could make monthly mortgage repayments more expensive. Of course, it’s important to bear in mind that this is only for people who have a variable-rate mortgage and not those on a fixed-rate deal.

If interest rates did rise and mortgages became more expensive, this may make it difficult for people to access them.

Many younger buyers are already struggling to get onto the property ladder due to the rising cost of homes and, so, the need for a larger deposit. If the monthly repayments were made more expensive, this could cause a fall in the number of buyers and result in a stagnation, or even fall in house prices.

Experts predict a fall in house sales in 2022, leading to a normalisation of the market

While rising inflation, and the prospect of interest rate rises, may sound worrying, it may not be all doom and gloom. In fact, many experts are hopeful that 2022 will return the market to a normal level of activity.

Furthermore, a period of stagnating house prices, coupled with rising inflation, could be useful for making homes more affordable for young people. As more of them get onto the housing ladder, it can help people to upsize and promote healthy growth.

According to figures from the Guardian, UK Finance, the bank trade body, predicts that gross mortgage lending will fall from £316 billion in 2021 to £281 billion in 2022. However, after this temporary slowdown, it will increase to £313 billion in 2023.

However, it’s also important to note that they predict a rise in both mortgage arrears and repossessions, as the changing economic climate means some homeowners cannot keep up with repayments.
If this gets out of control, it could potentially cause a fall in house prices, as banks sell off the homes cheaply to speed the sale.

Of course, this prospect certainly wouldn’t be the end of the world; a glut of cheap properties could make it easier for young people to get onto the property ladder, as well as open up opportunities for buy-to-let landlords.

That being said, the real estate company Rightmove was quoted in This is Money as saying that the market will calm down in the coming year. They also stated that while the growth in prices is expected to reach 5% in 2022, the frantic market activity will eventually subside.

Tim Bannister, Rightmove’s director of property data was quoted as saying that “While the pandemic is still having an ever-changing impact on society… we expect a housing market moving closer to normal during the course of 2022”.

Other predictions for house price growth in 2022 range from the 3% forecast by Zoopla to a 1.3% rise predicted by the Office for Budget Responsibility.

Get in touch
2022 could offer a variety of opportunities to both buyers and sellers, so if you want to be able to make an informed decision when it comes to property, we can help.

Please email us at advise-me@fosterdenovo.com or call us on 0330 332 7866 to speak to one of our team.

Please note:

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy-to-let (pure) and commercial mortgages are not regulated by the Financial Conduct Authority.

Information correct at 1st February 2022.