UK house prices will keep growing next year but at a “much flatter” pace, said Halifax, one of Britain’s largest mortgage lenders.
Prices are expected to go up about 1 per cent in 2022, but “forecast uncertainty remains very high”, the lender said in a report on Friday, published the day after the Bank of England surprised markets by raising its base rate for the first time in three years.
The increase from 0.1 per cent to 0.25 per cent will have a limited impact on a mortgage market dominated by fixed-rate deals but is viewed as a signal of the Bank’s intent to respond firmly to a sharp jump in inflation.
Economists do not expect drastic rate increases. But they predict that if inflationary pressures go even higher the Bank could raise rates again — in moves that could well damp the housing market.
Andrew Wishart, property economist at Capital Economics, said in a note: “The overall rise in interest rates over the next couple of years will be modest. However, the continued strength of both inflation and employment suggests there is a risk that the bank rate increases by more than currently anticipated, which would be more harmful to the housing market.”
Russell Galley, Halifax managing director, said: “With the prospect that interest rates may rise further in 2022 to subdue rising inflation, and with government support measures phased out, greater pressure on household budgets suggests house price growth will slow considerably.
He added: “Nevertheless, interest rates will remain low by historic standards and property prices will continue to be supported by the limited supply of available properties.”
Halifax, a member of the Lloyds group, predicted that house price growth would be “broadly flat” during 2022, growing by between 0 to 2 per cent.
The bank’s report highlighted the sustained strength of UK house prices. Galley said: “The UK housing market continued to defy expectations during 2021. The average property price has risen by a further 8 per cent so far this year following a 6 per cent rise in 2020.”
The government’s support for the market through a stamp duty holiday helped drive sales, as many buyers brought transactions forward. The pandemic-induced rise in homeworking and a desire for more space kept demand buoyant beyond the end of the tax break, Halifax said. Record-low interest rates pushed price-to-income ratios to historic highs.
Janet Mui, investment director at wealth manager Brewin Dolphin, said: “It is a fine balancing act to normalise policy to address inflation concerns without spooking the economy. A modest series of rate hikes may have a limited effect on households given about 80 per cent of mortgages in the UK are on fixed terms and mortgage rates are at the lowest in decades.
“Ultimately policymakers will remain data dependent and err on side of caution. Like the Federal Reserve’s hawkish tilt, the BoE is reacting to incoming data.”
Nigel Green, chief executive of wealth adviser deVere Group, pointed out that inflation was rising globally, adding to the pressures in the UK: “This will increasingly rattle the markets. Throughout 2021, the debate was whether soaring inflation is ‘transitory’. This debate is now over.”
“Why? Because the fallout from the pandemic has also not been ‘transitory.’ Ongoing supply issues, new variants, and global disparities in dealing and managing them, has resulted in prices having to rise.”
Green added: “As inflation now becomes the biggest issue for investors, the debate throughout 2022 will shift on to how to manage it . . . There will be a steady flow of interest rate hikes from most major central banks throughout 2022.”
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