Recent figures show that the growth in house prices is falling as the cost of living crisis in the UK starts to impact demand. Halifax reports that monthly house price growth fell to +0.3% in January, its lowest rise since June 2021.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, commented that “the looming threat of an incredible £693 hike in energy prices in April, coupled with tax hikes, and the rising cost of everyday essentials like petrol and food, means we’re worried about making ends meet as it is – let alone stretching ourselves to move up the property ladder.”
I’m going to reveal the latest house price figures, the areas with the highest growth rates and whether we’re likely to see house prices falling in 2022.
[top_pitch]
What happened to house prices in January?
House price growth slowed in January, following four consecutive months of 1% plus increases, according to Halifax. They reported that annual growth remained largely unchanged at nearly 10%, with the average house price hitting a new record high of £276,759.
Russell Galley, managing director of Halifax, also noted that “transaction volumes are returning to more normal levels” after the peak of 2021. HMRC reported transactions of over 100,000 in December 2021, compared to 93,000 in November. However, seasonally-adjusted transactions for the last quarter of 2021 were 18% lower than July-September. They were also 20% lower than the same quarter in 2020.
Although there were record numbers of first-time buyers in 2021, affordability remains an issue as house price growth outstrips earnings. If you’re a first-time buyer looking for the ideal place to get on the property ladder, take a look at our article covering the most and least affordable areas for first-time buyers.
Which areas had the highest house price growth?
As for 2021, Halifax reported that “Wales kicked off 2022 as by far the strongest performing nation,” with annual price growth of nearly 14% and an average price of just over £205,000.
Northern Ireland was in second place, with a price increase of 10% and an average property value of £171,000. Scotland was the third-highest region, with an annual house price growth of nearly 9% and an average property price of £193,000.
In England, the North-West was the highest growth region, with house prices increasing by 12% to an average of £213,000, according to Halifax. London had the lowest house price growth of 4%, although the growth rate in January was its highest in the last 12 months.
What is the outlook for house prices?
High inflation and rising interest rates are likely to impact house prices in 2022:
- Household budgets are being hit by soaring energy prices. They’re also affected by an increase in the cost of everyday essentials and the upcoming rise in National Insurance.
- The recent increase in interest rates will initially reduce disposable income for those on variable mortgage rates. Sarah Coles from Hargreaves Lansdown commented that as “four in five mortgage holders [are] protected by fixed rate deals, most haven’t yet faced the impact of rate increases.”
- Although the Bank of England is expected to increase interest rates gradually, nearly half of their committee voted (unsuccessfully) to increase interest rates by 0.5%, rather than 0.25%, at last week’s meeting.
- With inflation expected to continue rising until April, Capital Economics predicts that interest rates might hit 1.25% by the end of 2022. This 1% rise would result in a rise of £417 a month on a £500,000 mortgage on a variable rate.
So, how will higher interest rates affect house prices in 2022? The experts at Hargreaves Lansdown “don’t foresee the kind of rate shock that would send prices tumbling. However, we can expect monthly price rises to peter out.” This is backed up by RICS reporting a fall in new instructions for the ninth month running, with a knock-on impact on house prices likely over the next few months.
Russell Galley from Halifax commented that “while the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”
[middle_pitch]
What does this mean for buyers?
A fall in house prices could be good news for homeowners looking to upsize and for first-time buyers. However, if house prices continue to grow, even at modest rates, buyers may face a further squeeze on affordability.
Whether or not you’re planning to move, it’s worth checking whether there’s a cheaper mortgage option available. Our complete guide to mortgages explains the different types of mortgages available and the application process.
If you’re looking to maximise your deposit, why not benefit from the interest rate rises and invest in one of our top-rated savings accounts or best cash ISAs? If you’re looking for a higher potential return to hedge against high inflation, you might be interested in our top-rated stocks and shares ISA providers.
