Happy New Year to you and yours – I hope this finds you well.
The New Year started with a bang in our household, when we were rudely awakened in the early hours of the morning to screeching tyres and a loud crash. Peering out of the window revealed a car upside down in a neighbours front garden.
Fortunately the occupants were okay, but the telegraph pole serving our house was obliterated in dramatic style. The modern concept of working from home is great – no commute, heating on, music in the background…until you don’t have WiFi. Only then do you realise just how many things in your home are powered by the internet.
So it’s been back to the office for me this week, not that I’ve really minded, as the roads are quiet and it’s been nice to get out of the house. However, with property on my mind, I thought it appropriate to share some musings about what may lie ahead for the UK housing market. Will property prices blow the roof off once again in 2022, or will they…er…crash?
One thing is for sure, next time you renew your home insurance make sure you’re thorough, as you never know what might be around the corner…
It’s fair to say that 2021 was a pretty spectacular year when it came to the residential property market here in the UK. Well, that is if you’re already on the property ladder or a buy-to-let investor. Young aspiring home owners saving for deposits may have chosen a different word, as once again the UK property market did it’s best to keep them stuck in the rental pool.
As is often the case, a change in fiscal policy often has far-reaching consequences, frequently creating a ripple effect, the true extent of which becomes apparent further down the line. The UK stamp duty holiday was introduced in July 2020 and ran until July 2021, with further reduced rates applying until 1st of October 2021. It was intended to avert a potential housing market crash predicted early in the Covid crisis, as lockdown measures and concerns about job security threatened to cause the market to stagnate and a potential collapse in prices. In reality the stamp duty holiday didn’t just avert a crash, but fuelled a boom, creating a huge wave of momentum as buyers scrambled to take advantage of the tax saving.
Further adding to this was the working-from-home revolution, as thousands of businesses were forced to quickly pivot to remote working models, enabling many employees to work on their own terms without the need to commute. Despite initial concern from employers, in most cases this proved hugely successful, with many businesses not just surviving but thriving, despite the challenges and uncertainties brought by an ongoing pandemic.
This prompted a shift in the way in which many workers thought about their living arrangements. With surging Covid infection rates in densely populated urban environments, data shows that many of those living in UK cities began moving into less-populated suburbs. Meanwhile, realising they no longer needed to commute every day, many of those already in the ‘burbs began looking further afield at more rural areas.
As if this wasn’t already enough to move the market, with the Bank of England base rate on the floor at 0.1% (notwithstanding a small increase to 0.25% in December), the mortgage market provided some of the cheapest mortgage deals ever seen. Whilst I’m not old enough to have been a home owner during the Maggie Thatcher years when borrowing rates reached a heady 17%, it doesn’t seem like long ago that the average mortgage rate was around 5%. Yet amazingly during the last two years, it wasn’t unusual to secure mortgage borrowing at rates as low as 1%; something I’m sure most of us never thought we’d see.
All these factors combined to fuel a frenzy of buying activity in the UK housing market in 2020 and 2021, with house prices soaring amidst a startling imbalance of demand and supply. The chart below published by the FT shows just how significant this was for house price growth (whilst reminding us just how nasty the banking crisis was back in ‘08):
So what lies ahead in 2022?
Well, the general consensus seems to be that 2022 is likely to be another year of strong activity and price rises in the UK housing market, albeit somewhat more muted than the last two years.
Rightmove – who are arguably in one of the best positions to understand which way the UK market is going – have shared some interesting insights. First of all they suggest that the average price of a house in the UK is now a not-insignificant £342,000. With average earnings in the UK coming in at around £30,000 p.a., this doesn’t bode well for young first-time-buyers saving hard to afford their first step on the ladder. Demand for property remains high, with insufficient new properties being listed for sale to balance supply and demand, which will no doubt maintain upwards pressure on property values.
However, there are some signs that this pressure may begin to ease a little. Reportedly January has already seen a 19% jump in people requesting property valuations. Whilst no doubt some of these are homeowners simply curious to know what their abode may now be worth, it is surely a signal of intent for others keen to make a move.
In the article, Tim Bannister commented:
“While the 2022 property market will continue to be busy, we forecast it to be less frenzied than 2021, especially as more owners decide to come to market in the first half of the year.
“Movers will benefit from good mortgage availability, as well as more choice of property – especially with the usual surge of sellers coming to market in the spring. Price rises will be slower this year, compared to 2021, which will encourage some homeowners who have held back on moving to take action.”
This at least provides some reassurance that we may be seeing a calming of the property market ahead. However, unless these new sellers plan on moving into rented accommodation or residential care, surely they will be looking to buy new properties of their own, making this a largely zero sum game? Time will tell I suppose…
What does this all mean for us and our own finances?
Well, for anyone looking to move, you are likely to find strong competition for attractive properties, as it’s currently a seller’s market. When making an offer, one way to set yourself apart from other buyers is if you have the capacity to be a cash buyer. If you are negotiating a purchase and need us to confirm that you have the resources to buy a property outright, we can write to the agent on your behalf to confirm this (assuming you do actually have the capacity between savings and investments that is). It doesn’t necessarily preclude you from arranging a mortgage, but the reassurance to the seller that you could buy for cash if needed, is likely to help your offer succeed if competition is fierce.
For those of you with adult children looking to buy their first home, if you are considering gifting a lump sum to help them on their way, you might want to revisit the amount you intend to gift. Using our Voyant cashflow planning software we can factor a lump sum gift to children into your financial plan, ensuring we understand what impact a larger gift might have on your overall financial position, before you hand over the cash.
If you still have a mortgage, be it on your main residence or a buy-to-let, if your deal is coming to an end it is well worth looking at your refinancing options as rates have come down further in recent years. Also it’s worth keeping in mind that an increase in the value of a property relative to it’s mortgage, may provide a more favourable loan-to-value ratio, potentially unlocking more attractive interest rates.
Finally, whilst we review your inheritance tax position at each financial review, if you are particularly concerned that your home may have increased in value substantially, we’ll happily run a fresh IHT calculation so you know where you (and your family) stand.
With that I’ll close for now. If you’d like to discuss anything in this article please feel free to get in touch.
I hope 2022 brings prosperity and happiness to you and your family, and for me personally, hopefully the rest of the year will prove a little less dramatic than New Year’s Day.
Regards,
James Wetherall, Dip PFS
Managing Director
