Britain’s housing market is to slow dramatically in 2022 as borrowing costs rise and household budgets come under mounting strain, property experts have predicted.
After a year of booming prices driven by stamp duty holidays across the UK and changes in the types of properties being bought and sold, forecasters typically suggest house price growth of between 3 and 5% next year.
The most recent figures from Nationwide building society showed annual price growth running at 10%.
In London’s wealthiest boroughs, however, price rises are expected to outstrip those recorded this year, and could beat the figure for the UK as a whole.
The property firm Savills said it expected growth of 6% in prime London neighbourhoods in 2022, up from 3.2% in 2021, but that renewed uncertainty over Covid could push that growth into later in the year.
Savills said prices had started to rise again for flats in prime areas, as people began to return to the city or looked for a pied-à-terre to use while there.
Frances Clacy, an associate director at Savills, said: “Activity levels have picked up significantly over recent months, but the renewed Covid-19 uncertainty adds an unwelcome additional layer of doubt that will likely push the expected bounce in values further into 2022.
“Still, we believe it’s a question of when and not if prices rebound, particularly as more pent up demand builds, so prime central London remains a market to watch closely. Its bounce can be surprisingly rapid.”
The London market had fallen as wealthy buyers left the capital during months of home working, and overseas travel restrictions dampened the interest of buyers from other countries.
The market elsewhere has been boosted by a “race for space” during the pandemic along with government initiatives such as stamp duty holidays, the last of which ended in September in September, and cheap mortgage deals thanks to record low interest rates.
The Bank of England unexpectedly lifted interest rates for the first time in three years in December in response to growing concerns over inflation, which reached a decade high of 5.1% in November.
Borrowing costs, however, are still lower than before the pandemic, and analysts believe any future rate increases will be limited because it appears far from over.
Savills has forecast house price growth across the UK market of 3.5% next year as the economy rebounds from the pandemic and a shortage of homes for sale continues to underpin prices.
The Royal Institution of Chartered Surveyors predicts that house prices could end next year 3-5% higher than at the start of the year. Tarrant Parsons, an economist at Rics, said: “2021 has been an exceptionally active year for the housing market, with transactions close to record levels. However, despite more homeowners seeking more space and various incentive programmes … transaction activity for the coming 12 months will inevitably slow.
“All else being equal, higher borrowing costs will dampen demand across the market to a certain extent. The major challenge will be around the lack of stock on the market with inventory back close to historic lows, and shows little sign of easing.”
Halifax, one of the biggest mortgage lenders, said earlier this month that it expected price growth to slow considerably as a result of rising living costs. It forecast price growth of zero to 2% in 2022. This compared with increases of 8% recorded so far this year and 6% in 2020. It estimated the average house price in December at £272,992, almost £34,000 higher than at the start of the pandemic.
The property website Rightmove has predicted house prices will rise by 5% nationally and 3% in London. Zoopla, a rival site, expects 3% next year and forecast 1.2m transactions, down from 1.5m in 2021 but in line with the average number of transactions over the last five years.
Robert Gardner, the chief economist at Nationwide building society, has not put a figure on how much he expects prices to move in 2022. He said: “The outlook remains extremely uncertain. The strength of the market surprised us all in 2021 and could do so again next year.”