Property & Mortgage Outlook – February 2022


Making predictions is never easy. Back in May 2020, the Bank of England warned that house prices could fall by as much as 16% as a result of the coronavirus pandemic. Following this news, home owners – already navigating their way through an unprecedented situation – braced themselves for even more uncertainty.

However, according to the latest figures from the Halifax House Price Index, the housing market is continuing to defy expectations. In fact, despite the impact the pandemic has had on the UK economy, average property prices were up 9.8% in 2021, an increase of over £24,500 – the largest annual cash rise since March 2003.

Beyond house prices, there’s also other trends we think will shape the market in 2022. For example, it is clear that issues around affordability will continue to feature. Indeed, throughout the pandemic a combination of rising inflation and historically low interest rates meant that many first-time buyers were forced to save for higher house deposits than they may have bargained for. The good news looking into 2022 though, is that 95% mortgages* are once again available to first time buyers. And despite higher inflation and an increase in interest rates, average rates on those mortgages hit a record low in 2021 and continues to remain at low levels in January 20214.

Rising house prices are a challenge for significant parts of the UK, though, with two thirds (67%) of the public believing that the UK housing market is not helping people get access to affordable and quality homes in their area. Moreover, both homeowners (60%) and renters (72%) agree that house prices are the biggest issue facing the market right now and are sceptical that the housing industry will be able to provide reasonably priced, quality homes post-pandemic.

Already this year we have seen the House of Lords Built Environment Committee call for barriers to housebuilding, particularly for SMEs, to be removed in order to help improve housing supply. We expect continued political and industry focus on how we help more people access affordable and quality homes. As we say, though, it’s difficult to make solid predictions within the context of a pandemic. It’s important to remember that whether or not house prices rise or fall this year depends on a number of factors, not least coronavirus and the impact it may continue to have on the economy.

House prices hit record high but slowdown looms

The average price of a home rose by 9.7% compared with a year earlier, gaining £24,500 to £276,759. However, monthly growth rose by 0.3%, down from 1.1% in December and the smallest monthly rate of increase since June 2021.

Commentators expect the housing market to cool “considerably” this year as Britons are confronted by a cost-of-living squeeze. The Bank of England raised interest rates to 0.5% to curb inflation that it expects to rise above 7% in April. It forecast that rising energy costs and goods prices would lead to a 2% drop in people’s net income after inflation this year — the biggest hit to real incomes since comparable records began in 1990.

About 22 million households will have to pay 54% more for their electricity and gas supplies from April 1, when the energy price cap rises to around £2,000. The Bank also predicted that growth in Britain’s GDP would slow. However, while commentators believe house price growth will cool this year, they did not expect prices to fall significantly.

Unplanned savings built up during the pandemic will go some way to offsetting the income squeeze. And with around 80% of UK mortgage debt at fixed rates, most mortgage-holders are well insulated from short-term increases. Furthermore, more stringent affordability criteria and mortgage regulation introduced during the 2010s means that recent buyers should be better placed to cope with higher mortgage rates than in the past.

Mortgage rates begin to rise

Mortgages are getting more expensive for some homeowners after the Bank of England confirmed it was increasing interest rates from 0.25% to 0.5% – here is what it means for you. Nationwide and Santander have become the first major lenders to confirm a hike in mortgage rates following an interest rate increase by the Bank of England. The BoE increase was to help tackle spiralling inflation rates. One knock-on effect of this, is certain mortgage deals will get more expensive.

Nationwide will increase its mortgage rates from March for customers on its “base mortgage rate” and “standard mortgage rate” deals – these will rise to from 2.25% to 2.5% and from 3.74% to 3.99% respectively. Customers with tracker mortgages will also be hit with the full 0.25% increase, the lender has confirmed. Santander has also announced that its standard variable rate will rise by 0.25% from March. They will go up to 4.49% from 4.74% and tracker rates will increase by the same 0.25% amount. Halifax said it would write to customers with mortgages affected by the BoE rate change to let them know their new monthly payment, according to Mortgage Solutions. The lender hasn’t revealed specific amounts. If you are on a tracker mortgage, then your rates go up as these move in line with the BoE base rate.

Whether you are coming to the end of your mortgage product or keen to compare your current rate to the best available elsewhere, please contact your adviser who can put you in touch with our mortgage partners.

* Lending criteria restrictions apply to all products, always seek independent advice.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

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Source: Techlink


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