UK House Price Rises: Will House Prices Drop in 2022?

Discover the UK Housing Market Predictions for 2022

What to Expect From UK Property Prices in 2022

The property market has been centre stage throughout 2021 as stamp duty was slashed, millions rushed to buy and sell, and house prices soared in the UK – but what’s in store for 2022?

From navigating mortgages and saving for a deposit to finding the perfect location, the UK property market is almost impossible to predict.

This year, house prices have soared, putting the cost of home-ownership out of many people’s reach. According to the Office for National Statistics, the average UK house price has rocketed by 10.2% over 2021 to a whopping £285,000 in England.

This means buyers require a larger deposit than ever before to get their foot on the property ladder. Aspiring buyers must guess at the best time to purchase their first home, while trying to save a deposit.

So, will house prices drop in 2022?

What Caused House Prices to Rise in 2021?

Before we delve into UK housing market predictions for 2022, let’s look at what caused house prices to rise in 2021.

There are two main factors that have contributed to rising house prices over the past year. These are:

A stamp duty holiday
Higher mortgage rates

Stamp duty

A stamp duty holiday created a surge in demand for homes in 2021 as it meant buyers could save thousands of pounds.

Under the temporary change, house buyers weren’t required to pay any stamp duty on properties worth up to £250,000, and the rates on more expensive homes were lower than usual.

For example, someone buying a £300,000 property would have paid just £2,500 in stamp duty under the relief, rather than the usual £5,000.

Additionally, first time buyers didn’t pay a levy on properties worth up to £300,000 (£500,000 in London).

While the stamp duty holiday helped millions of first time buyers get on the property ladder, it had much wider implications that weren’t so positive.

As a result of the 2021 levy, millions of Brits raced to bag a home and save thousands of pounds by beating the stamp duty holiday deadline.

However, as the tax-break began to taper off from 1 July, it caused a last minute scramble to complete on a new home.

Mortgage rates

The second factor that contributed to rising house prices in 2021 was higher mortgage rates. In December, the Bank of England raised interest rates for the first time in more than three years, in response to growing concerns over inflation.

Soon after the announcement, many mortgage lenders announced they would be increasing rates on their tracker mortgages and standard variable rates in line with the Bank’s raise.

Interest rates are predicted to rise again, which would mean mortgage rates will follow, making monthly repayments more expensive.

But has the housing market cooled down after the stamp duty holiday began to taper off? And will house prices continue to rise in 2022?

Will House Prices Drop in 2022 UK?

As is the case most years, agents are predicting a ‘Boxing Day bounce’ where both buyers and sellers spring into action during the post-Christmas lull as they start to make plans for the year ahead.

However, after the New Year rush starts to wane, many predict that house price increases could start to slow.

“It would be hugely surprising if house prices continue to rise at such an accelerated pace in 2022 as they have done over the past 18 months”, says Tomer Aboody, director of MT Finance.

House prices in 2022 are expected to stop rising so dramatically due to a number of reasons, including:

Household budgets will be stretched due to rising inflation
Renewed pandemic uncertainty
Mortgage interest rates are edging up
The stamp duty holiday is no longer in place

When it comes to how much house price increases will slow, however, no one seems entirely sure. House price indexes have predicted anything from 0% to 5% over the year – but none have suggested that 2022 house prices might fall.

What Impact Will Omicron Have on the 2022 Housing Market?

Surprisingly, rather than having dampened the UK property market in 2021, the Covid-19 pandemic has so far served to encourage activity.

Prior to the emergence of the Omicron variant of Coronavirus, bringing with it talk of further restrictions, property experts claimed that some of the housing trends seen during the early days of the pandemic were being reversed.

For example, people selling flats during the pandemic struggled as buyers looked for homes with more space, further away from city centres.

Yet, more recent signs pointed to a resurgence for flat-sellers, as workers were increasingly needed back in the office. The average price of apartments increased by 10.8% in 2021 up to November, according to the latest house price index, while detached properties only rose by 6.6%.

Whether this trend continues will largely depend on the severity of the new Omicron variant. If people start working from home again – or even being in lockdown – there could be renewed desire for larger homes with outdoor space, as seen in previous lockdowns.

Sam Le Pard, co-founder at broker and advisory firm Lexi Finance, says “Omicron will have less of an impact than the first wave of Covid-19 purely because we’ve seen it before and the economy is better-placed to cope with restrictions.”

Should Buyers Wait for House Prices to Drop?

So, armed with these 2022 housing market predictions, should would-be buyers hold off until price growth eases?

While we cannot say for certain when UK house price increases will start to slow, it is very likely that things will begin to balance out. That is, although people selling their home in 2022 might get less for it than in 2021, the property they purchase will probably be cheaper too.

However, those planning a more substantial jump up the ladder may be advised to wait. Mark Hughes of Pure Property Finance says, “Nobody can predict the exact movements of 2022 in terms of the housing market, but I think it’s fair to say that if you’re currently in a home where you’re safe and financially stable, not to move just yet.”

“For those moving up the property ladder, their next purchase is likely to be more expensive than their previous property, meaning more finance is needed and, in this situation, the only people that will win are the mortgage companies.”

So, it looks like waiting for house prices to drop might be the best option. If you hold off selling for a few more months, you might be able to get a few more thousands of pounds for your property, and the property market will likely be more stable.

Top Tips for House Buyers in 2022

With the 2022 housing market looking like a total guessing game, we could all benefit from some tips for buying a house in 2022.

So, here’s our advice for anyone seeking to snap up a new home in the new year:

Be flexible on moving dates – being willing to compromise on your completion timeline will make you a more attractive buyer to a seller
Check the cost of renovating – the cost of building materials has rocketed in 2021. If you’re planning a refurbishment job, check your costs very carefully.
Lock in a cheaper mortgage – try to buy as early as possible in 2022 as mortgages are likely to get more expensive over the course of the year.
Consider renting – consider putting yourself in the best possible position to move quickly if your dream house arises. Moving into a rental means you won’t have an onward chain.
Be realistic – in a tough market, buyers might not get everything they want in a property. You need to prioritise what is most important to you.

2022 House Price Forecast

So, there seems to be both good news and bad news when it comes to 2022 housing market predictions.

Property experts appear to think that while house prices might not drop in 2022, the rate of increase will very likely slow.

Thus, if you’re thinking of selling or buying a house, it might be better to wait a few months in the hope that growth will slow and the housing market will become less volatile.

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