2021 Summary: Setting the Scene

2021 started off in the depths of lockdown. However, despite this, demand for property and mortgages remained strong, with the “race for space” being entrenched in the psyche of many buyers. This demand and activity continued to grow, and reached a crescendo towards the end of the SDLT holiday. The buoyant property market, the end of Covid restrictions and positive economic forecasts, led to lenders beginning to reduce rates at higher LTVs and we saw record low interest rates in the BTL sector. 

The housing and mortgage market has continued to flourish, despite broader issues in the economy, including record inflation, a new Covid variant in the form of Omicron, supply chain issues, soaring energy prices and the end of the SDLT Holiday; and it seems the only thing curtailing the market is the supply of potential properties and this is serving to keep prices high. 

In December, the Bank of England’s Monetary Policy Committee announced the increase of the Base Rate to 0.25% to aid the cost of living crisis and combat fears of inflation and potential stagflation. Towards the end of December, there were no signs of slowing down as mortgage enquiries remained high and clients were looking to secure low fixed rates in anticipation of future rate rises. 

Looking forward on the mortgage and housing market in 2022

Base rate rises

Rampant inflation driven in part by soaring energy costs have led the Retail Prices Index of inflation to hit 7.5% last month, the highest rate since March 1991. Inflationary pressure on the economy led to the Bank of England raising rates before the end of 2021 and we suspect will drive further rate rises this year with a 0.25% rise expected in February and on Monday rate futures priced in an 87% chance of such a move, bringing the base rate to 0.5%. We suspect we will see further rate rises this year as well as it appears the inflation is not transitory. 

Mortgage rates

Lenders tend to price in rate rises, in the same way as the markets do, by reacting before they actually occur and we saw this before the rise in December and thus rates have remained fairly unchanged since the announcement itself. This time round is no different with rates this year, in the fixed rate products, creeping up week on week, prior to the potential base rate announcement on the 3rd. As lenders are confident in the housing market outlook we have seen rates come down dramatically in higher LTV bands (80%+) and criteria being relaxed across the board. We suspect rates will continue to rise across the year gradually and with increased competition, we will see increased product innovation from lenders, including further focus on green product offerings. 

The BTL sector is the one to watch, with rates remaining incredibly low (0.99% best available rate on a 2-year fixed product) due to increased competition in this space and rates coming down in more specialist products such as limited company buy-to-lets. 

The interest rate environment still remains low in a historic sense and we suspect the demand for remortgages and for mortgages on longer terms (5 years +)  this year will be enormous once consumers see further base rate rises as they seek to lock in lower rates in the longer term. 

House prices

Annual house price growth increased by an impressive 10.4%, the largest growth since 2006 during 2021 and the average house price was 16% higher than before the pandemic struck in early 2020. While 2022 looks like it will be more subdued, price growth will likely be driven by a lack of available homes for sale, a still low mortgage rate environment despite rises and high demand with many buyers having sold to try and purchase in 2021. The recent price increase relative to wages over the last 18 months has led to more unaffordable housing and a more difficult market for first-time buyers. We expect that the purchase market will be more subdued in 2022 as many buyers brought planned purchases forward on account of the SDLT holiday and with the cost of living crisis and inflation putting pressures on households we suspect buyers may delay moving. However, there is still huge amounts of demand and our agency partner Jackson Stops recently reported that nationally there are 19 buyers for every newly listed home and in the Southwest of England, this demand is even greater with 23 buyers for every newly listed home. As house prices continue to rise, this could incentivise more people to put their houses on the market and ease the imbalance we have seen in supply and demand and we may see some equilibrium reached in the coming months. 

Outlook and return to cities?

We have started to see demand return to city centres as the country begins to open up. There has been increased demand from foreign nationals and expats looking to purchase UK property, and not purely in London. This trend will likely continue  as England remains one of the least restrictive places in terms of Covid. Based on recent enquiries and announcement from City firms on staff returning to work, we believe we will see a return to the geographic status quo this year in terms of increasing prices and demand with a renewed focus on the Capital. London therefore could be an attractive investment opportunity as house prices catch up relative to the national growth we have seen elsewhere and we have seen increased interest in investment property. 

Share this article: