UK House Price Forecasts revised up for 2022
Supply is rebuilding more gradually than anticipated, which means house price growth is expected to end the year in high - rather than mid-single digits.
3 minutes to read
Housing market statistics continue to sit uncomfortably alongside other UK economic indicators.
With inflation at a 40-year high and interest rates at their steepest in 13 years, annual house price growth rose to 12.4% in April, data from the ONS showed last week.
In this article we assess:
- Why house prices have been revised up
- Why house prices are beginning to peak
- How rental markets will respond
The latest house price forecast for 2022 is available here.
It wasn’t an anomaly, with the Nationwide and Halifax both reporting double-digit growth in May.
The housing market is clearly taking longer than anticipated to recover from the distortions caused by the pandemic and stamp duty holiday.
We have therefore revised up our UK house price forecast to 8% from 5% in 2022, following our latest quarterly review. Our previous forecast can be found here.
Regional house price breakdown
The new regional breakdown for 2022 can be seen below. All subsequent years are unchanged.
We still believe annual growth will return to single digits by the end of the year as supply builds and demand is put under pressure by rising mortgage rates and spiking inflation.
Low supply has been the key story of the pandemic for the UK housing market. It has largely failed to keep pace with demand, particularly during the frenetic conditions of the stamp duty holiday, and put upwards pressure on prices.
Prospective sellers were often unable to find purchase options of their own, causing a vicious circle effect.
Are house prices peaking?
However, listings have picked up in recent weeks following the Bank of England’s decision to raise the base rate to 1.25% and issue a series of stark economic warnings. More sellers have come forward in the belief house prices may be peaking.
That said, not all commentators agree with the Bank’s economic assessments, citing the lowest rate of unemployment in nearly 50 years.
Prime London price rises
We have also revised up our expectation for prime outer London (POL) to 5% from 4% and our prime country forecast to 7% from 5.5% in 2022.
Furthermore, we have increased our forecast for prime central London (PCL) to 4% from 3.5% as the market continues to be buoyed by strong domestic demand as international buyers make their gradual return to the capital.
“House price growth is peaking as supply rebuilds and mortgage rates normalise,” said Tom Bill, head of UK residential research at Knight Frank.
But one lesson from the pandemic is that nothing reverts to normal overnight, which is particularly true in a relatively slow-moving market like residential property. We therefore expect a more gradual return to earth for prices.”
Rental value growth
The distortive effect of low supply has also kept rental value growth high.
A sharper slowdown in the sales market would have boosted supply and increased downwards pressure on rents as owners let out property that failed to sell for the asking price.
We expect stock levels to be particularly squeezed over the summer as high demand from corporate tenants and students exceeds available supply.
We have revised up our rental forecasts for PCL and POL in 2022. We now expect rental value growth of 11% in PCL and 9% in POL, up from 8% and 5%, respectively.
All other forecasts remain unchanged and will be reviewed in Q3.
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Contact Tom Bill for more insight, comment, analysis and forecasts in the UK residential property market.