Millions of homeowners have watched the value of their houses rise by more than £15,000 over the last year.
Our analysis of properties that registered a price rise in 2021 showed that 9.2 million properties recorded a change in value of between £15,000 and £29,999 and more than 6 million homes increased by £30,000 or more.
These equity-rich homeowners will be a strong driver of buyer demand next year coupled with the continued desire for households to move to bigger properties or relocate to rural and coastal areas.
Predictably the market has cooled in recent months in the run up to the festive break but the post-Christmas bounce back is right around the corner.
House price resilience
So what impact has the festive lull had house prices?
Our House Price Index (HPI) showed that house prices grew by 7.1% in the 12 months to November, held up by strong buyer demand and a lack of homes to choose from.
The analysis shows that in the year to November, buyer demand was 16% higher than over the same period in 2020. The supply of new homes coming to the market, however, was 9.5% lower.
Although the November HPI shows a slight uptick compared to October, it’s a way off August’s growth rate when house prices rose by 7.6% highlighting how price increases have cooled since the sizzling hot months of activity seen over the summer.
But if you look at the countries and regions across the UK you’ll see a different picture.
Regional house price growth across the UK
House prices in Wales are continuing to race ahead of the national average for price growth.
Average prices in Wales have risen by more than 11%, up from 10.8% in October.
Carmarthenshire in south west Wales, with its coastal towns and rural locations – factors that have become more important during the pandemic – is the local authority registering the highest pace of growth at 13.2%. The market is one of the most affordable in the country.
Property hunters looking for a house to buy in Wales can expect to pay no more than six times their earnings in most parts of the country. In a few remaining areas this falls to four times earnings, according to research by Zoopla.
At the other end of the price growth spectrum sits London and Aberdeen. London registered 2.4% average annual growth, while prices in central London went into reverse.
In the City of London, properties fell in value by 1.8%. It now costs more than 10 times the average person’s salary to buy a home in this part of the world.
Some of the boroughs fared better, however, with south east London towns of Bexley and Bromley recording annual growth of 5.9% and 5.7% respectively.
Heavily influenced by wider trends in the North Sea oil industry, Aberdeen’s average house price fell 0.3% in the 12 months to November.
Return to normality in the housing market
As we begin 2022, buyer demand will rise sharply after the seasonal lull.
The search for more space, and the increase in household equity built up after a bumper rise in house prices will also fuel home mover demand. Those trying to get on the first rung of the property ladder, however, may find it increasingly difficult.
But the busy start to the New Year will give way to more normal levels of housing market activity. It took on average just 30 days to go from listing a property for sale to accepting an offer subject to contract this year, 20 days quicker than in 2020.
The speed of sales will return to a more normal pace next year giving stock levels time to replenish. But homes for sale are likely to remain below the five-year average.
Interest rate rises on the horizon
The will-they-won’t-they-game ended earlier this month when the Monetary Policy Committee (MPC) finally decided to increase the base rate from its record low of 0.1% to 0.25%.
The move caught some off guard, with expectations that the Bank of England would wait until the New Year to observe the effects of Omicron, the latest and fast-spreading strain of Covid-19. But when inflation rose to 5.1% in December the MPC voted eight to one in favour of upping the rate.
Household have already been under considerable pressure to cope with rising energy and fuel costs as well as price hikes for goods such as furniture, furnishings and household appliances.
The Bank of England has warned, however, that things are likely to get worse before they get better. Inflation is forecast to peak at 6% in April and the Bank is prepared to tighten monetary policy further, which can mean more rate rises.
The good news is that the knock-on effect on mortgage costs will be modest, even with another rate rise. Those who have already locked into a two or five-year fixed rate will be protected from any immediate increases in their mortgage costs. Borrowers not on a fixed rate will have passed rigorous lending stress tests to make sure their household budgets can absorb mortgage rate rises of 3% above the cost of their current deal.
Mortgage rate rises could impact buyer sentiment
Nevertheless, in a rising interest rate environment, buyer sentiment may be affected.
As outlined in last month’s market insight reports, house prices are forecast to rise by 3% and transactions to reach around 1.2 million, down from 1.5 million this year.
Although supply pipelines will have chance to rebuild after the busy start to the year cools off, the demand and supply imbalance is not likely to unwind.
With affordable homes still to be found in many regions across the UK, a rise in homeowners’ equity and the desire to move to bigger homes, there are plenty of factors underpinning pricing and transaction levels in 2022.