A popular property portal has released their monthly House Price Index and it has indicated that the UK housing market is on track to record its strongest year since 2007. This is in terms of sales volumes and house price inflation.
Avoiding the Edge
The pace at which this year’s housing market has grown by has been a result of re-evaluation of housing, low mortgage rates and the boost from the Stamp Duty Land Tax holiday.
The high levels of demand have been 30% over the five-year average since summer. It has defied the expectation that it would fall after the Stamp Duty holiday. This raises the question of what greater force is responsible for the strength of the UK housing market.
It is forecasted that by the end of the year, demand will exceed levels recorded at the end of 2020, and it is on track to continue into 2022.
There is still a supply and demand imbalance within the UK housing market which in turn is supporting the house price growth. The figure currently stands at 6.6% with all countries and regions of the UK registering growth rates which is ahead of the five-year annual average (except London).
London has registered the lowest house price inflation (+2.3%) and is currently the only region where the growth is below the five-year average. At the top of the growth table is Wales with their inflation rate at 10%
It has been documented several times that since the first lockdown back in 2020, home buyers have undergone a series of shifts over the past 18 months. In fact, in the immediate aftermath of the first lockdown, it was found that wealthier owners in high value homes were moving. Fast forward to 2021, mortgage availability has improved and first-time buyers are making a comeback.
Consequently, the growth of value to homes has slowed in terms of new sales are being agreed.
Outlook for 2022
As we emerge from the effects of the pandemic, housing transactions are expected to decline by 20% from their peak of 1.5m by the end of 2021, and then further decrease to 1.2m in 2022. This is in line with the long-time average whilst remaining relatively high compared to the last decade.
By the end of 2022, house price growth is expected to be 3%. It is projected that the highest regions will be the East Midlands and North West England. London’s growth is anticipated to remain low at 2%.
Mortgage rates are likely to increase as we end 2022. It is expected that 2022 will end with mortgage rates at 3%. This should reduce demand for some buyers with mortgage rates still being love by historical standards. If there is an increase in mortgage rates, this is likely to impact sales volumes.
Richard Donell, Executive Director at the property portal, commented: “2021 is set to be a record year for the housing market with the most moves by homeowners since 2007 and nearly £500bn of home sales. The impact of the pandemic on the housing market has further to run but at a less frenetic pace. We expect the momentum in the market to outweigh some emerging headwinds from higher living costs and the risk of higher mortgage rates.
The latest date showed a turning point in the rate of house price growth, which we expect to slow quickly with average UK house prices up 3% by the end of 2022.”