Will house prices fall in 2022?

When will house prices fall?

The UK property market boom might soon be over, as experts predict that the cost-of-living crisis could cause a house price correction. Currently the market is overheated. Property prices have increased by an average of 11% over a year. This makes it increasingly difficult for first-time buyers to get a foot on that elusive first rung of the property ladder.

In this article we explain:


The average UK house price rose by £25,000 in the year to August, says the ONS


Why are UK house prices so high?

The average price of a UK home has nearly trebled since the turn of the century.

On the surface, it looks like the main long-term driver has been simple supply and demand: a shortage of housing stock compared to high demand for properties. While this is a factor, the Bank of England says its record-low interest rates have really been powering the housing market.

Rates have been at rock bottom for more than a decade and were at a record low of 0.1%. The Bank of England has increased the base rate four times since December in response to soaring inflation and it is currently at 1%. However, it’s still relatively cheap to borrow money to buy a home so the housing market hasn’t been affected yet. But further rises are expected throughout 2022, which could dampen the housing market as it means mortgage repayments will increase.

The cost-of-living crisis is likely to be the biggest cause of a slowdown in the housing market. As household budgets come under pressure, fewer people can afford to stretch themselves to buy homes.

It’s through that some first-time buyers could hold off as they wait to see what happens to the market.

The Covid-effect

Since the onset of the Covid crisis, low interest rates have been joined by three other important factors in driving house price growth:

But what is the trajectory from here – will house prices drop?


Average house prices in the UK

Growth in average house prices in the UK gathered pace in the second half of 2020, a trend that has continued throughout 2021 and into this year. It had been expected that the end of the stamp duty holiday and furlough in October 2021 would result in less demand for house purchases, but that has not been the case. In March 2022 UK house prices grew at the fastest pace since 2004. However, growth has since decreased somewhat. Data from Nationwide building society has shown an annual increase of 12.1% in April and 11.2% in May, indicating a slowdown. Nationwide says the price of an average home is now £269,914. This is more than a fifth higher than at the start of the pandemic, or around £30,000 higher than May 2021. Meanwhile mortgage lender Halifax has also confirmed that house prices appear to be slowing. It says the average house price was £289,099 in May, 10.5% higher than a year ago. When looking at monthly data, prices increased 1% between April and May. Nationwide and Halifax differ in their house price estimates because the representative properties they track are slightly different.


What are the regional variations?

There are a number of regional variations when it comes to house prices, and some areas remain highly competitive.

  • House price growth is slowest in London
  • But prices in the capital are still the highest in the UK at almost £520,000 – almost double the UK average
  • Wales is growing faster than any other region or area in the UK, with growth of more than 15% year-on-year

Meanwhile prices of large, family homes are growing faster than flats. Prices for detached and semi-detached houses have risen 12% over the past year, compared to 7% growth for flats, said Halifax.


Is there a greater demand for rural locations?

With working from home likely to be a more permanent part of many people’s lives, demand for properties outside cities and commuter belts has jumped.

Lockdowns highlighted the value of greenery and space, triggering a surge of interest in properties in rural and coastal areas, according to ONS statistics.

House prices in some hotspots have risen at three times the national rate. These include places like:

  • Conwy in North Wales
  • North Devon
  • Richmondshire in the Yorkshire Dales

Estate agents report significant interest in rural and remote properties in Scotland.


Will house prices crash in 2022?

While we can’t say for sure what the future holds for the UK housing market, a crash seems very unlikely. This is because there is still plenty of demand and a short supply of houses, which has driven up house prices for years. However, there are a few factors that could put a dampener on the recent spectacular growth, namely the cost of living crisis. Record petrol and energy prices, alongside rising inflation and tax rises mean most households have less disposable income to spend on buying houses. If demand slows down then the rate of house price growth could also fall.

So, while a crash seems unlikely, the squeeze on household finances as a result of the cost-of-living crisis means we could see a significant slowdown in house price growth as the year goes on. 


House price predictions

Given the continued “race for space”, many housing market predictions remain bullish:

  • Hamptons house price forecast predicts a rise of 3.5% each year between 2022 and 2024
  • Lloyds Banking Group expect house prices to maintain their current strong levels over the next year, but growth to be much flatter through 2022 at around 1%
  • Property consultancy Cluttons suggest that in some parts of London, prices could fall by as much as 10% next year while Foxtons predict growth of 1 to 3% in the capital

In the short-term the property market is expected to continue its upward trend. However, high inflation will push interest rates up which will slow the housing market down by the end of the year and into 2023. Analysis from Capital Economics predicts that the Bank of England base rate will peak at about 3% in the second half of 2023, in turn pushing average mortgage rates to 3.6%. While still historically low, that is more than double the 1.6% rate recorded at the end of 2021. Based on this data, Capital Economics has forecast house prices to rise throughout 2022, before falling by 5% in 2023.

Russell Galley, managing director of Halifax, said the prospect of increasing pressure on households’ finances could cause growth to slow.

“The headwinds facing the wider economy cannot be ignored. With interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year.”


Hannah Smith

The Times Money Mentor

15th June 2022

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