This year has been a record for the housing market. Even though the year began in lockdown and sales are up, there has been an increase in off-the-scale interest which has led to house prices reaching eye-watering heights.

However, will the price rises continue next year? Is the tide changing? 

This is where we get the experts’ opinions on the current boom as well as their forecasts for the future.

Hot property: Despite starting the year in lockdown, off-the-scale demand has seen sales surge and house prices hit eye-watering highs

Hot property

Record breaking year 2021 

Analysts believe that 2021 will be the busiest years for UK property markets since 2007, when the financial crisis hit.

According to UK Finance, around 1.5 million transactions for house purchases have been made since January. 

This figure is 47 percent higher than 2020 and represents the highest level since prior to the credit crunch.

Zoopla, a property website claims that one out of 16 homes will change hands before the year ends. It has also been a record year for mortgage lending, with homebuyers borrowing around £316 billion. According to UK Finance statistics, this represents a nearly three-fold rise in mortgage lending compared to 2020.

The house prices are also at historic heights. The average property cost £272,992 in November, according to Halifax. This is an 8.2 per cent — or £20,000 — increase on the same month last year.

Nationwide’s figures paint a similar picture, with the average house price rising 10 per cent to £252,687 in the 12 months to November.

The Office for National Statistics (ONS) figures lag slightly but it’s the same story, with average prices up 10.2 per cent to £268,000 in the year to October.

The price boom: What was the reason? 

In 2020, the recent home-buying frenzy started. After sales had been put on hold for seven consecutive weeks, the market was already bustling with buyers.

With the announcement of the July 2020 stamp duty holiday, Chancellor Rishi Unak added fuel to the flames. 

By raising the threshold from £125,000 to £500,000, he slashed the tax bill to zero for 90 per cent of buyers.

Those purchasing homes worth more than £500,000 still had to pay some tax, but stood to save as much as £15,000. 

The original plan was for this perk to last until March 2021. However, the deadline was extended due to concerns that buyers might miss the cut-off and cause thousands of sales collapse.

The market was able to recover from the loss of the August phase-out in September. 

Scotland and Wales offered similar tax reductions for a temporary period, ending March and June each.

Low rates and a race for space 

However, there’s another factor. After successive lockdowns, many families are now frantically rethinking where they would like to live. 

Many want to make the move to larger homes with more space outside and extra room to work.

Many people who were reluctant to leave their cities for more remote areas are looking to relocate to rural areas.

Zoopla stated that the 2021 property market would be defined as a pandemic-led home revaluation, in which many families will have to move.

And Londoners are on course to have spent a record £54.9 billion on 112,780 homes outside of the capital this year, according to research by estate agent Hamptons.

Potential buyers are also attracted by ultra-low mortgage rates. Lenders are offering a wide range of 2- and 5-year fixed rates at below 2 percent, even though the Bank of England increased its base rate this month for the first-time in over three years.

Sales boom: Around 1.5 million house purchase transactions have taken place since January, according to banking trade body UK Finance

A sales boom has occurred: More than 1.5 million home purchase transactions since January according to UK Finance (a banking trade organization).

Many hopeful buyers were also able to save an estimated £200 billion extra over lockdown because they did not have to commute and could not spend money on socialising and holidays. This turbocharged the ability of first-time purchasers to put down a deposit.

These buyers are still in high demand, and lenders have just recently begun to be competitive after taking out loans earlier during the pandemic.

The Bank of Mum and Dad, a so-called bank of mum and dad also has extra cash available to support family members purchasing their first home. 

Property group Savills estimate that parents will have contributed £9.8 billion in gifts and loans over the course of 2021 — supporting nearly half of all first-time buyer purchases.

While demand is up, there has been little growth in the number of available properties. The price of a property that is in high demand but not available will rise, as it has always been. New-build projects have been hampered by supply chain problems. 

Many owners chose to stay put during the pandemic and instead have improved or extended their homes. Due to fears of virus, some households in vulnerable areas have delayed downsizing. Others have continued holding off hoping that the prices will rise.

Are prices going to keep rising?

Most experts believe prices will keep rising next year — albeit at a much slower pace. However, experts warn there’s still much uncertainty with the pandemic far from over and households struggling to make ends meet.

Robert Gardner, Nationwide’s chief economist says, “It seems likely that the market for housing will slow next year. Since the stamp holiday encouraged many of them to move forward with their house purchases in order to avoid any additional tax, it is probable.”

If the Omicron variation leads to a weaker labor market, it could increase the pace of slowdown. Higher interest rates will likely have a cooling effect, even if the economy is resilient.

“House prices have outpaced income growth significantly over the past 18 month and housing affordability has already become less favorable since before the pandemic.”

A report from the building society found that the average buyer of a property today must spend five and a half times an annual income to be able to afford it.

If the Bank of England increases its base rate by 1% in next year’s forecast, then mortgages will also go up. 

Borrowing costs: Even after the Bank of England hiked its base rate earlier this month, lenders are still offering plenty of two and five-year fixed deals at under 2%

Borrowing costs

Bank plans to loosen affordability regulations that require borrowers prove their ability to pay the bank’s standard variable rate, which is usually around 3-4 percentage points plus 3 percent.

In the aftermath of the financial crisis this check was put in place to prevent large loans from getting out. Experts fear that removing it will push the prices higher for first-time buyers.

Russell Galley is the managing director at Halifax. He says that with rising interest rates and a phased-out government subsidy, there are greater chances for household budgets to be under pressure, which could lead to a slowing of house price growth.

“Nevertheless, interest rates are expected to remain at historic lows and property prices will be sustained by limited supplies of properties. 

We expect, therefore, that house prices will maintain their current strong levels but that growth will be broadly flat during 2022 — perhaps somewhere in the range of 0 to 2 per cent.’

He also said that prices for houses could increase or decrease by greater margins in the next year, depending on how Covid-19 (and its variants) impact the economic climate.

Tarrant Parsons is an economist for the Royal Institution of Chartered Surveyors. 

He says activity will ‘inevitably slow’ and house price inflation should ‘fade from particularly elevated rates’ — but that a lack of stock on the market remains a major challenge.

Rightmove is predicting that the national average house price will go up by five percent next year. 

The average property cost £272,992 in November, according to Halifax. This is a 8.2% - or £20,000 — increase on the same month last year

The average property cost £272,992 in November, according to Halifax. This is a 8.2% – or £20,000 — increase on the same month last year

Rightmove’s director of property data Tim Bannister said that it’s been an intense 18-months for the market ever since the last lockdown. 

“The net result is that we are approaching the launch of the market in 2022, which will be the lowest stock ever for property per estate agent branch. However, there has been a steady high demand from buyers.”

But he also said that 2022 will likely be “less frenetic” than 2021.

Chief executive at Twindig property site, Anthony Codling also predicts a 5 percent increase in house prices next year. 

As the spring selling period of February, March, January and March ends, house prices will likely fall by 1 percent to 2 percentage points in April, May and June. Mortgage rates are expected to increase. 

We expect house prices to rise gradually in the second half year and we believe they will increase by 5% in the UK in December 2022.

Henry Pryor, a property expert, says that prices will continue to climb if there is a shortage of housing and borrowing costs remain low.

The lottery of the postcode

In some areas, house prices will be higher than in others. According to ONS statistics, London had the 10 areas experiencing the greatest house price growth for this year.

The October prices of Tower Hamlets, Hackney and Hackney in East London were 12.5 percent and 6.6% lower than the previous month in 2020. 

Hartlepool in County Durham and Hyndburn in Lancashire reported increases of 23.4 percent and 23.2%, respectively. However, these numbers are subject to change.

Buying a property in Wales has also never been so expensive, with the average house price breaking through the £200,000 barrier for the first time in history in November.

Rightmove believes that Scotland, South West England, Yorkshire and Humber will all be competitive in next year’s market. It predicts that these markets could see a rise of up to 7 per cent. 

London’s prices will rise by 3 percent. Savills reports that the prices of prime properties outside London have risen at the fastest pace in a decade. Devon, Cornwall, and Cotswolds are all showing strong performance.

Flats were in decline because of the ‘race to space’ that followed national lockdowns. However, there’s evidence to suggest this trend could be reversed as first-time home buyers are being able to borrow more money and workers returning to the city.

Rightmove claims that buyers are searching more for flats these days than houses.

There is no set formula for anything.

UK Finance expects mortgage lending to drop slightly from £316 billion this year to £281 billion in 2022 — before increasing again to £313 billion in 2023.

James Tatch is its data and research specialist and says that the outlook for mortgage and housing markets in the coming two years will be for a better, more balanced picture. 

It states that arrears should only rise modestly while repossessions can also be expected to increase slowly.

Jason Tebb (chief executive at property site OnTheMarket) adds, “For those contemplating selling, this is still the best time in almost two decades to list in the most time possible and receive the highest sales price.”

This means that movers will most likely have to pay higher prices for their next property. However, as we have seen previously — similar to when the Centre of Economics and Business Research predicted in September 2020 that prices would drop by 14 per cent this year — any house price forecast is best taken with a pinch of salt.

According to Mr Pryor, “If these past two years have taught us anything it’s that no one knows what the future will bring.”

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