According to experts, the UK housing market is expected to slow down in 2022. Seeing the massive boom in property prices from November 2020 to November 2021, during which the average price of property grew by a whopping 10 per cent, most experts believed ted that the average price of a property in the UK will continue to rise in 2022, but at a much slower pace. However, in January 2022, according to the data from Halifax, property prices hit a record high. With that being said, estate agents in Sittingbourne believe that the growth of property prices will slow down in 2022 due to the rising inflation as well as the rising rate of interest. This is what the experts have to say.
According to Halifax, the UK house prices hit a record high in January 2022 with the average price of property reaching £276,759. On average, that means the average price of property rose by £24,500 from January 2021 to 2021. When compared to the pre-pandemic era, we can see a whopping £37,500 increase in the price of the property from January 2020 to January 2022. Despite that, considering the increasing cost of living, coupled with the rising inflation and the increase in borrowing rates, the average growth of property prices in 2022 is expected to be slow. In January 2022, the price of property rose by a mere 0.3 per cent, which is considered to be the slowest monthly growth rate since June 2021.
After looking at the market activity in 2021, which certainly reached its peak, the number of transactions in the UK property market is expected to return to normal in 2022. As the average price of property continues to rise, affordability has become historically low. This is essentially due to the imbalance between property prices and monthly earnings, where the house prices continue to rise while the earnings growth remains comparatively low.
With that being said, it is important to note that a record number of first-time buyers entered the property market in 2021. This is partially due to the stamp duty holiday, due to which buyers were exempt from paying stamp duty. Secondly, government schemes such as Help to Buy also benefited first-time buyers. Lastly, the mortgage guarantee scheme which was introduced by the UK government in 2021 allowed first-time buyers and investors to avail of low deposit mortgages, which allowed many first time buyers to finally climb the property ladder. However, as lenders become stricter with their mortgage criteria and the borrowing rates continue to rise, affordability will become a major issue for first-time buyers. Also, the requirement of a hefty deposit is another factor that is working against first time buyers.
For one, the cost of living will increase because of the increase in energy costs, which are expected to soar from April thanks to a 54 per cent rise in the price cap. In order to combat the upcoming inflation, the Bank of England has increased the cost of mortgages and the UK has already seen two hikes in the interest rate. Experts predict that there will be at least 2 more interest rate hikes by the end of 2022, which will make further increase the cost of mortgages.
It is also important to consider the drastic change in buyer demand during the pandemic era, where people were looking to move into spacious properties in the outskirts and boroughs. While the demand was at an all-time high, the number of properties that are available for sale are a least 40 per cent to 50 per cent lesser than the number of properties that were on the market the previous year, which has led to the imbalance between demand and supply. And finally, the inflation rate in the UK is soaring; the inflation rate, which is measured by CPI, has already increased by 5.4 per cent from December 2020 to December 2021, which is supposed to be the highest rise in inflation since the last 30 years.
Over the next few months, the increased cost of living, the low supply in the housing market coupled with the rising rate of inflation will only put more pressure on the housing market. Also, it is the imbalance between the demand and supply that has led to the sudden and massive increase in property prices in the UK. However, as the supply of residential housing is expected to increase in the near future, it is thus predicted that the average price of a property will slow down considerably in this year.