The housing market has got off to a strong start in 2022.

Between Boxing Day and the New Year, Rightmove recorded its busiest period on record for home mover activity. Compared to December 26 last year, there was a 21% rise in homes being listed for sale, website browsing reached its highest ever level and buyer demand was up by almost a quarter.

But when this festive flurry of activity dies down, what lies in store for the housing market for the rest of 2022?

Well, before we see where the market is headed here’s a recap of what’s happened over the last 12 months. 

2021 in summary

Several factors were behind last year’s booming market which led to 1.5 million house sales – the highest number since 2007.  Some of which will remain important driving forces this year. 

Chancellor Rishi Sunak’s stamp duty holiday, introduced in July 2020 after the first lockdown, sent buyers and sellers into a frenzy. With the promise of savings worth up to £15,000, homeowners brought forward plans to move house while property investors and buyers hunting for a second home took advantage of a lower tax bill. Although the opportunity to save the most tax ended on June 30, and was withdrawn altogether on September 30, there’s only been a gradual let up in the appetite to keep moving.

The pandemic has led to a reassessment of buyers’ priorities that has not abated. Short-term working from home routines have become a longer-term fixture, giving people the option to live further away from towns and cities. Being cooped up at home under lockdown restrictions has given rise to a desire for more space inside and outside the home and prompted many households to move closer to family. 

With dining out off the menu, holidays banned, and shops shut first-time buyers and families saw their savings rise much quicker than usual.

Top that off with low mortgage interest rates and the increased availability of 95% mortgages favoured by first-time buyers, and you have a recipe for significant house price inflation. 

House prices – where are we now?

After six consecutive months of price rises, annual growth hit 9.8% in December taking the average UK house price to £276,000, according to Halifax. 

Rival lender Nationwide reports a slightly higher growth of 10.4% and a lower average house price of almost £250,000. Whichever report you choose to follow, both record a cash rise of £24,000 over the last year. 

Are buyers still keen to buy?

Yes, demand is still high. Some 6.6 million homes have risen in value by more than £30,000 last year says property data firm Hometrack. These equity rich homeowners have the spending power and the desire to upsize to bigger homes in 2022 and 2023. 

A recent survey by Zoopla found that more than a fifth of households said they were more eager to move in the next two years than before the pandemic. Meanwhile, first-time buyers renting flats are keen to upsize to starter homes. 

Much to the relief of everyone, except cash buyers, the pace at which homes change hands will slow down to pre-pandemic levels after a busy start to the year. It was taking less than 30 days to list a property on the market and agree a sale in 2021. Hometrack expects this to return to 50 days this year. 

Affordable locations still to be found

Anyone who isn’t already on the property ladder will be wincing at the news they’ll need a quarter of a million pounds or more to buy a home. But that’s not the case everywhere in the UK. 

Although some areas of the UK have higher rates of annual growth than the country’s average, they’re also home to some of the most affordable properties.  

Wales is a great example. The country has experienced an 11% rise in house prices but the average home costs around £215,000 according to Zoopla. Cities in the North West, such as Liverpool, experienced a significant rise in prices but even after a 10.7% increase the average home costs £141,500. Newcastle, Glasgow and Aberdeen also have average house prices of less than £150,000.

By contrast, the average price of home in London is £505,000.

Is the pace of house price growth in 2021 sustainable?

According to the experts, no. 

The pace of growth in 2022 is expected to slow. Depending on which report you read you’ll get a different figure, but they all point to a slow down in price rises this year.

Let’s look at the reasons why house price growth is expected to slow.

In December, the Bank of England upped the Bank base rate (BBR) from 0.1% to 0.25%, in an attempt to slow down rising inflation - an indication that the cost of living is going up. As the base rate rises, so do mortgage rates, making it more expensive to borrow money to buy a home. Further base rate rises may be on the cards this year to bring down inflation.

Although mortgage rates are expected to remain low by historical standards the increasing cost of mortgage borrowing is expected to give some buyers the jitters. 

As we said, inflation is rising. That means the cost of everyday goods and services is going up which puts household budgets under pressure and will affect the amount of money families are able to spend on a new house. As inflation exceeded 5% in December and is expected to rise before it begins to fall, 2022 has been coined ‘year of the squeeze’.

So, will house prices drop in the UK 2022? We suspect not, because there’s still a chronic shortage of homes to buy which is expected to keep house prices from falling. 

There will be more homes available to buy because there’s likely to more buyers who are selling a home in 2022 than investors or second house hunters snapping up homes without listing their own for sale. Even so, lots of people still want to move home and there aren’t enough houses to buy.

Housing market predictions 2022 UK

Zoopla is predicting 3% annual house price growth this year. The North West, East and West Midlands and Northern Ireland are all expected to see growth of up to 4%.

The Office of Budget Responsibility predicts a 3.2% rise. 

Estate agents Savills is slightly more optimistic, predicting a 3.5% rise this year. 

Experts say the appeal for larger homes and rural locations will remain, but interest in purchasing flats in towns and cities is on the up after waning during the pandemic. It seems living in the middle of the countryside didn’t suit everyone after all.

Tax surprises 

Unless you’re a property developer, there are no new property taxes planned for residential properties. The government is, however, considering closing a tax loophole which means anyone buying a shop with a flat above it will have to pay more stamp duty than they do already.

Is there any good news for first-time buyers?

Despite the news that house prices will continue to rise there are still areas of the UK that remain affordable to first-time buyers and banks and building societies remain committed to helping them. 

As well as a strong supply of 5% deposit mortgages, Nationwide, along with other lenders, recently signed up to support a newly launched scheme called Deposit Unlock. The scheme gives buyers the chance to purchase a new-build home by taking out a 95% mortgage when buying from a builder taking part. The Help to Buy equity loan scheme, which is now open to first-time buyers only, will also run until April 2023.

And rising house prices need not be all bad news for first-time buyers. It means that the Bank of Mum and Dad has been given a housing equity boost. Create a Tembo plan today to find out how they can unlock their equity or use their salary to help you buy your first home using an Income Boost or Deposit Boost mortgage.  

Words by Sam Partington