As wealthy people sought more space in the work from home revolution, the cost of prime London housing rose at the fastest pace in a decade. However experts expect that prices will fall across the board due to rising borrowing costs.

The Cotswolds saw the fastest growth, with country houses worth more than £2million piling on nearly a quarter (23.4 per cent) to their value, with demand coming from local homeowners looking to upsize, those relocating and aspiring second home owners.

Savills reported that the average price of prime coast markets such as Cornwall and Devon experienced 15.6% annual growth. However, growth in central London was only 2%. In the suburbs, however, it was 13.6%.

In general, the prime market is composed of between 5 and 10% of all homes. These properties tend to be the most sought-after and expensive. You can find them in both coastal and country properties.

The village of Castle Combe in the Cotswolds, which saw the highest rises for the price of prime properties this year

Castle Combe is a Cotswold village that experienced the greatest price increases for its prime properties in this year’s Cotswolds. 

Central London saw growth of just 2%. Pictured is a road in Kensington, one of the capital's most sought-after neighbourhoods

Central London experienced a 2% growth rate. This is Kensington Road, one of London’s most desirable neighbourhoods. 

In the suburbs growth was higher at 13.6%. This image shows the river at Richmond Bridge, which was built in the 18th century

The suburbs saw a 13.6% increase in growth. The image below shows Richmond Bridge in New York. It was constructed in 18th-century. 

Prices in prime real estate markets located outside of the capital increased by 9.3%, the largest annual increase since 2010. This was because buyers sought more space and changed their lifestyles as a result.

These properties, which include those situated near the coast in beautiful Cotswolds country and private estates that can be commutable to the city, were the best performers.

‘In these markets, the rarity factors – whether it’s a rarely available type of property, the most sought after locations, or simply the best view – have combined with high levels of buyer demand and wealth to create pockets of extremely strong market conditions,’ said Frances Clacy of Savills.

“New buyers numbers in the last month have been 1.5 times more than they were during the pre-pandemic years. It suggests these trends could continue through the first part of next year.

Price growth was 9.1% for prime urban locales, as compared to 9.4% in rural areas surrounding major cities, such as York, Cambridge and Cambridge. The stamp duty holiday helped boost demand.

Miss Clacy commented that there has been a rise in demand for prime locations. Despite their long-term underperformance, the rural and village markets will still be a strong source of demand.

Experts believe that the increase in house prices next year will be slowed by higher borrowing costs and tighter household finances.

The Guardian reports that forecasters usually predict house prices rising between 3 to 5% in the next year.

Savills predicted 3.5% growth across the UK. Although it predicted that London would see a slight increase in growth (6% at prime central locations, up from 3.2% last year), Savills warned of renewed uncertainty about Covid which could push the UK’s growth later in 2018.

Miss Clacy explained that although activity has increased in recent months, the new uncertainty surrounding Covid-19 will add an extra layer of doubt to the equation and could cause a further rise in expected values into 2022.

We believe that prices will rebound but it is more a matter when than if. This is especially true as demand increases. Prime central London continues to be a market worth watching. You might be surprised at how quickly it bounces back. 

Is there a future for mortgages? Here are six predictions for 2022: rising rates, green deals…and finally some good news to first-time buyers

Helen Crane, This Is Money 

There have been many ups and downs for those who applied to mortgages or remortgages in 2021.

Lenders raised rates in 2020 in response to uncertainty from the pandemic. However, this was quickly reversed in 2021 when they sought to capitalize on the home-buying frenzy.

Spurred on by an historic low 0.1 per cent base rate, mortgage rates fell to all-time lows in the spring with the first 0.99 per cent interest deal hitting the market in April. 

Getting a mortgage on your home was very cheap in 2021, but that is set to change for many

In 2021, it was quite affordable to get a mortgage for your house. But that’s about to change.

The lender then plumbed further to find the best rate, which was 0.83 per cent. 

Although these deals only were available to those who had deposits above 40 percent, the effects trickled down into mid-market where those with deposits over 80 percent could still get very attractive rates.

The tide has now turned. Mid-December saw the Bank of England raise its base rate to 0.25 percent. It is already having an effect on mortgage rates.

How will the mortgage market look in 2022? This is Money reviews six changes that could occur in the market. We look at what rates are likely to go, how simple it will be for people to be approved for home loans, as well as any other unexpected developments.

1. Inflation rates will rise

Rates were so low in 2021 that there was no way they could go up in 2022.  

Variable rate mortgage holders will see a small increase in monthly payments due to the base rate change, but fixed rate homeowners will remain protected for as long as their initial fixed period ends. 

However, it could be the first of several base rate rises in the coming year, as the UK economy tries to recover from the pandemic while battling rising inflation. 

Gerard Boon, a mortgage broker at Boon Brokers says that the base rate increase will immediately raise variable interest rates for mortgage lenders. 

“In 2019, I anticipate mortgage lenders to slightly increase their fixed rates, as is normal after an increase in base rate. 

“The full extent of the increase in fixed interest rates is yet to be determined.”

Lenders have taken steps to increase rates. 

These are the lowest interest rates that mortgages can offer with different deposit sizes, fix lengths, and interest rates. However, buyers need to be aware of the fact that choosing a higher rate but paying a smaller arrangement fee could make it cheaper. 

> Check the best rates available using This is Money’s mortgage service 

Market’s lowest mortgage rate 
The deposit size  Fix duration  Cheapest rate
(correct 23/12/21)
Provider Fee 
40%  2-year period  1.11%  Barclays  £999 
40% 5-years  1.35%  National £999 
25%  2-year period  1.12%  Yorkshire BS  £1,495 
25%  5-years  1.39%  Yorkshire BS  £1,495 
10%  2-year period  1.61%  Platform  £1,249 
10%  5-years  2.18%  Clydesdale Bank  £1,999 

The Office of Budget Responsibility predicted that real-world mortgage interest costs would rise in 2022. They will then grow by 13.1 percent in 2023.

According to AJ Bell analysis, this means that someone with £250,000 of borrowing, who fixed earlier this year and renewed in 2023, would see £600 a year added to their mortgage costs, while someone with £450,000 of borrowing would see their costs rise by £1,068 a year. 

Any rises in interest rates will hinge on the changes made to the base rate.  

Adrian Anderson of estate agent Anderson Harris says: ‘With inflation at its highest level for 10 years, expect some more base rate increases. 

It is possible that the base of it will reach 0.50% in 2022. But it is difficult to know if this will happen further, and if so how.

While rates may be increasing for many, historical data shows that they have been very affordable. 

For example, in some 1980s periods, the mortgage interest rate was up to 15% 

Anderson states that rates remain high value and will continue to have strong demand for mortgages. 

2. Remortgaging will boom  

According to UK Finance data, remortgaging activity took a hit in 2021, with the amount lent dropping from £80billion before the pandemic in 2019 to £62billion.

It was partially because people chose to move home rather than refinance their current one.

The situation is likely to change in the next year. UK Finance said remortgaging activity would increase in 2022, with a total of £69billion lent – an increase of 11 per cent on 2021. 

This can partly be attributed to strong housing markets for 2020 and 2017. People who take out new mortgages in those years will end their five-year and two-year tenures. 

They will be able get lower rates than they had on the existing deal for many of them.   

Remortgaging is also done to consolidate or pay down debts. This will increase in the coming year.   

“There will be lots of remortgaging and a lot more debt consolidation, as people try to clean slate and get their finances in order,” says Lewis Shaw (founder and mortgage expert, Shaw Financial Services).

“The odds are that we will see more base rate increases and COVID damage begin to manifest. 

“It is not going to go well, but with some planning and sensible advice about mortgages, most people will be fine, even if they are a bit worse off because of the inflationary pressures brought on by Brexit and Covid.” 

3. It will be easier for first-time buyers

First-time mortgage buyers saw the largest reversal in fortunes than any other group in 2021. 

Lenders were just beginning to put 10% deposit products on the market again at the beginning of this year after having pulled them during the pandemic. 

Only 160 homebuyers could find a deal to purchase property in January 2021 with only a 10 percent deposit. This is down from 779 deals before the pandemic.

The rates were eye-wateringly high – which felt like a kick in the teeth as they sat by and watched the cost of borrowing for existing homeowners sink to record lows.

Average two-year fixed rate was 3.65 percent, an increase of 2.57 percent in March 2020. 

The market was virtually empty for products that required a deposit of 5 percent. Only eight were available, and all reserved for borrowers who had guarantors. 

However, both rates and mortgage availability have improved tremendously and will continue to do so despite the rise in base rates.     

The average rate for a 2-year fix by someone who has a 10% deposit as of the most recent Moneyfacts data is 2.51 per cent. This is far less than the 3.79 percent in December 2020 and even lower than that pre-pandemic. 

On the up: Moneyfacts data shows an improvement in mortgage rates for first-time buyers

It’s a good thing: Moneyfacts data shows a rise in the mortgage rates of first-time buyers 

The average rate for deposits at 5% was 3.09%, according to Moneyfacts records dating back to 2011. 

However, saving a deposit can still be a problem. According to Aldermore Bank, first-time buyers have been forced to find, on average, an extra £23,000 to purchase a home since the start of the pandemic due to runaway house price rises.  

4. The affordability rules might be made easier   

The Bank of England may make affordability checks less strict for those who are trying to get on the property ladder and people with low incomes. 

In 2022 it will consult on plans to scrap the rule which requires applicants – whatever the initial rate they are applying for – to prove they could pay their lenders’ higher standard variable rate of interest, plus 3 per cent.

Mark Harris, CEO of SPF private client mortgage broker, said: “Having affected certain borrowers like first-time purchasers, the review may allow those who have not been able get onto the property ladder to do so.

However, this may be a double-edged sword. Although this restriction could make it more easy for borrowers, experts warn that it may cause higher house prices. 

The Bank rejected another suggestion to allow lenders to increase the proportion of large mortgages they offer to people who need to borrow more than 4.5 times their salary.   

Some lenders, however, are making independent moves to provide mortgages up to seven times the salary. 

Nationwide has increased the maximum loan-to income ratio from 5.5 to 5.5 in 2021. However, Nationwide can offer this deal only to approximately 5,000 households each year. 

Online broker Habito has also just announced that it will offer mortgages of 7 times income to professional applicants including firefighters, police officers, NHS clinicians, teachers in the public sector and those with a salary of £75,000 or more.  

5. The loanees will stay put for longer 

In 2021, more borrowers obtained mortgages with terms that were longer than 25 years. 

Quilter wealth management company reported that 25112 mortgages had terms of more than 35 years as of March 2021. This is a 70% increase over the March 2019 sale which saw a mere 14,765 sales.

It allows the borrower to spread out their monthly payments for a longer period, decreasing their monthly outgoings and increasing the interest rate. 

The rise could have been due to the uncertainty of borrowers during the pandemic.   

Anderson states that Anderson thinks more banks will begin to offer long-term fixed rates. This could also impact how banks determine affordability.

Choosing a newer, more energy-efficient home could net buyers a better mortgage

A buyer could be eligible for a lower rate mortgage by choosing a modern, energy-efficient house.

Some lenders offer fixed rate loans with longer terms, which borrowers can even fix over the lifetime of their mortgage. 

The rate and the future outlook of the rates are key factors in determining whether this deal is good.  

Habito introduced a mortgage in March with a fixed 40 year term and no exit fees. Kensington did the same in November. However, the former will not allow borrowers to remortgage elsewhere. 

Problem with these deals? They charge higher rates for longer fixes. 

It’s unlikely that taking one makes sense when rates have been falling. However, if rates continue to rise in 2022, then fixing for the future could look like a great deal. 

6. The greening of mortgages is imminent 

The political environment soared to the top this year and mortgage markets also joined the fray. 

Many lenders offered mortgages that provided special benefits to homeowners who had homes with higher energy efficiency. These usually required an Energy Performance Certificate (EPC), rating A, B, or C. 

These numbers are expected to grow in 2022. Emma Cox, sales director at Shawbrook Bank, says: ‘We can expect to see a growing number of green products coming to the market in the coming year. 

The government’s focus on net zero in housing is significant. With the introduction of the EPC regulations, lenders will want to help homeowners and potential buyers to choose or improve energy-efficient properties.

As a result, lenders will be under pressure from the government to make their mortgages more energy efficient. 

It has been especially prevalent in the buy-to-let market, as landlords will be required to get to a C EPC rating on all new tenancies by 2025 – although there are products targeting owner-occupiers, too. 

These rates may not be as good as standard products. Many of them offer a higher loan to income ratio, or cashback, rather than lower interest.