Price growth gained momentum during most of 2021, after one of the busiest years the market had ever experienced. But with the lowest level of quarterly house price growth since August 2020, there are signs now that price growth is starting to ease, although the path will not be linear.
Price growth was spurred during 2021 due to the pandemic ‘reassessment of home’ driving demand among buyers and owners
wanting to live elsewhere or in a home with a different space. In addition, the stamp duty holiday running from the summer of 2020 to autumn last year also boosted demand and eroded supply.
The market is highly localized, however, with price growth ranging from 16.6% in Powys in Wales to -2.2% in the City of London.
Affordability, working practices and property type are all factors in the range of value growth over the last two years. Liverpool leads the city growth at 10.3%, with price declines of -0.3% in Aberdeen.
While new supply is starting to turn, the speed at which the market is moving means that in January, around a half of properties that sold progressed from listing to sale agreed within three weeks. In comparison, last year, around a third of properties progressed this quickly through the purchase process.
This underlines that it will take time to start to rebuild the total stock of homes in the market. Last year, some 1.5 million home sales were secured, even as stock levels declined, as willing sellers and buyers were able to agree purchases. The market moves more smoothly when there is choice for buyers, so the rebuilding of pipelines is positive as movers are more willing to list homes when they can find a property to move to.
Changing sentiment in the market as a result of the evolving economic conditions would cause another slowdown in listings as potential movers, sellers, adopt a ‘wait and see’ approach. But in the face of such high demand, including from first-time buyers who do not need to sell, there will still be the opportunity to secure transactions.
This year, rising economic headwinds, including the increasing cost of living and rising mortgage rates will start to put the brakes on house price growth.
The global uncertainty and volatility resulting from the invasion of Ukraine will have economic impacts around the world, including the UK. We continue to expect 1.2 million home sales this year, down from 1.5 million in 2021, and that average house price growth will be between +2% and +4% at the end of the year.
Grainne Gilmore, head of research at Zoopla, commented: “The sheer level of activity in the market in recent years eroded the stock of homes for sale. But the data indicates that more homes are now coming to the market, as movers and other owners list their properties for sale - and this will create more choice for the many buyers active in the market. However the imbalance between high demand and supply will take much longer to unwind, and this imbalance will continue to underpin pricing in the coming year.
"Even so, we expect the rate of annual house price growth to ease over the course of 2022, as economic headwinds, including mortgage rate rises and the rising cost of living, put the brakes on price rises. Overall, we forecast average price growth of +3.5% by the end of the year across the UK."
Guy Gittins, CEO of Chestertons, says: “Last year, we saw house hunters feeling left in limbo as the impact of the pandemic created a strong sense of economic uncertainty. Since then, buyer confidence has returned and there has been a drastic increase in demand for houses and apartments alike.”
“To see new buyer enquiries of this scale at the beginning of the year is truly remarkable and a strong indication for the market to remain buoyant for at least the first half of 2022. Whilst larger properties or homes with outside space remain sought-after, apartments in some of London's more central boroughs are experiencing a steady comeback. This is particularly driven by professionals who are returning to the office and are seeking a home nearby.”
Chris Hutchinson, CEO of Canopy commented: “The UK housing market was turbulent long before the pandemic, however, the last two years has supercharged the discrepancy between house prices and affordability. Hopeful buyers, who have now been plunged into the middle of a cost of living crisis, are running out of options when it comes to getting on the housing ladder. Their current living costs at odds with saving the necessary funds for a deposit.
At times like this, it’s important that positive financial habits are encouraged. For renters who have to hit monthly payments, it is essential they track each payment towards their credit score. In a fiercely competitive market, ensuring you have the edge over the competition by being in the strongest position possible for affordability checks will be vital.”
Emma Cox, MD of Real Estate at Shawbrook, comments: “Current uncertainty, coupled with rising inflation and rapid cost of living increases, is certainly making life harder for potential buyers. They are facing stiff competition up and down the chain, not helped by strong demand rooted in a lack of quality supply. This has driven asking prices to record highs, with only the Treasury enjoying the additional stamp duty that buyers are incurring.
“It is important that the government’s £1.5 billion Levelling Up Home Building Fund is put to good use, and fast. The property market needs an influx of quality, affordable housing to help rebalance the market and make it more accessible for all.
“It is, though, a more favourable market for those in the Private Rental Sector, with landlords in a good position to take advantage of the current landscape and add to portfolios in popular areas. Locking in a competitive mortgage rate now can go some way to combat future interest rises and increasing cost of living rises.”
