The boom in UK house prices is likely to end next year as household finances become increasingly stretched, according to Halifax.
The mortgage lender said it expected the red-hot increases in average house prices over the last two years – 8% so far this year and 6% in 2020 – to end, with growth forecast to be “broadly flat” in 2022.
The Bank of England raised interest rates on Thursday for the first time since the start of the coronavirus pandemic, from o.1% to 0.25%, and signalled further increases in the months ahead, potentially dampening appetite for spending as budgets come under strain.
“With the prospect that interest rates may rise further in 2022 to subdue rising inflation, and with government support measures phaser out, greater pressure on household budgets suggests house price growth will slow considerably,” said Russell Galley, the managing director of Halifax.
Halifax expects the current strong housing price levels to be maintained – the average UK house price is now £272,992, almost £34,000 higher than at the start of the pandemic – but that growth in 2022 will be somewhere between flat and 2%.
“There is still a large degree of uncertainty around this forecast,” Galley said. “Particularly around the extent to which savings accrued during the pandemic continue to boost housing transactions and prices, and how lasting the recent shifts in housing preferences prove to be.”
With the pandemic-fuelled shift to flexible, remote and home working, homebuyers have rushed to buy larger properties in picturesque and rural locations outside urban centres.
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Other factors fuelling homebuying involve the government’s stamp duty holiday, which came to an end in England and Northern Ireland in September after finishing earlier in Scotland and Wales, and historically low interest rates.
“The UK housing market continues to defy expectations during 2021,” Galley said.
However, with soaring inflation and more rate rises expected in 2022, the cheap mortgage deals that have also boosted the housing market in 2021 are likely to be more difficult to find.
“Nevertheless, interest rates will remain low by historic standards and property prices will continue to be supported by the limited supply of available properties,” Galley said. “However, it is prudent to highlight the potential for house prices to rise or fall by much greater margins next year, depending on how Covid-19 and its variants continue to impact the economic environment and the potential for any further policy interventions.”