2022 will be very different; with inflation driving higher prices across the board, labour shortages, wage inflation and the real prospect of higher interest rates. The stage is set for things to change. Initially, house prices may not be unduly affected with the supply remaining chronically short. The lack of supply will not deter buyers keen to relocate in the right areas with outside space. The ratio of demand to supply is past its peak, but is still exceptionally high. The first half of 2022 could see stronger prices. Confidence and household finances will be challenged, but that will prompt a robust demand to remortgage with product transfers and fixed rates becoming increasingly popular. In the longer term, affordability will become a real issue which will force extended loan-to-value borrowing for first time buyers, despite the relaxation of stringent stress tests for borrowing. With an ageing housing stock and borrowers needing higher LTV loans, the current and future value of property will become more dependant upon valuation procedures.
The outcome is likely to be a significantly cooler market than the boom of 2021. The main driver of rising house prices since lockdown ended last year- wealthy home movers not behoven to lenders, and willing to pay above guide prices- is no longer a factor. Much of the slowdown will be driven by a lower demand from buyers, which fell to 4% above the five year average by mid-december. If the market becomes dependent on buyers who take on substantial mortgages, then all eyes will focus on the bank rate, with expectations of another rise early in the new year, probably contingent upon rising inflation.
The market for recent purpose-built blocks of flats will continue to struggle, with Leaseholders in properties that are unmortgageable without expensive remediation in the wake of the Grenfell fire in 2017. The Building Safety Bill, due to be given Royal Assent in 2022, could help to relieve the market by pushing remediation costs on to Developers.