High levels of house price inflation should return to something approaching normality in 2022, experts have predicted.
Property prices increased by 9.8% over the course of 2021 according to Halifax, amounting to a price increase of £24,500.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “2021 created an environment that was ideal for rampant price rises. The stamp duty holiday, rock bottom mortgage rates, lockdown savings, the race for space, and the fact there were so many more buyers than sellers, all fed into a surging market.
“We would always expect growth to slow after this kind of boom, because people have brought forward house price purchases. So many people are now in a bigger home and have spent their lockdown savings, that demand will naturally fall back. We can therefore expect house price growth to slow as we go into 2022.
“How much it slows will depend to a great extent on inflation. Higher inflation can deal a double whammy to house prices. It costs more to make ends meet, so people have less cash to save for a property move, and struggle to afford a bigger mortgage. At the same time, higher inflation is likely to persuade the Bank of England to raise rates, pushing up mortgage costs too.”
Inflation is likely to rise to as much as 6% in spring, while the energy price cap should be hiked in April.
Russell Galley, managing director of Halifax, said: “Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably.
“Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace.
“However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”
The mortgage lender Together also predicted the market to cool down this year.
Scott Clay, distribution development manager at Together – the specialist lender – said “Momentum in the property market surpassed all expectations last year owing to low interest rates and government assistance like the stamp duty holiday, and the race for space influenced demand during the pandemic.
“It is likely 2022 will paint a different picture; we can expect the housing market to cool down with the latest interest rate rise, continued concern around the Omicron variant, the high cost of living and overall economic uncertainty.”
The Bank of England raised interest rates to 0.25% in December – and more increases could follow this year, as the Monetary Policy Committee aims to keep inflation in check.
Emma Cox, sales director at Shawbrook Bank, recommends for buyers to explore their mortgage options before rates pick up.
She said: “The Bank of England’s decision to raise interest rates in December after months of speculation could start to have a bearing on borrowing rates and housing affordability in the New Year.
“First-time buyers, 400,000 of whom entered the market last year, may miss out if favourable mortgage rates begin to leave the market in the coming months. With a potential further interest rate rise in February too, buyers may need to reconsider their options in order to take their next step.
“For those intent on moving, beginning proceedings sooner rather than later would be wise. While competitive mortgage rates won’t disappear overnight, agreeing a fixed rate now can shelter buyers from any short-term volatility as we move away from a borrowers’ market and into a savers’ one.”