House prices in the UK shot up by 9.8% in December 2021 on an annual basis, shows new data from Halifax.

From November 2021 to December 2021, prices grew by 1.1%. And on a quarterly basis, prices increased by 3.5%, the strongest quarterly growth recorded since November 2006.

This leaves the average UK property price at £276,091, the lender’s index says – a record high.

In 2021 overall, the average property price increase by more than £24,500, which is the biggest annual rise by this metric since March 2003.

“The housing market defied expectations in 2021,” says Halifax managing director Russell Galley.

He adds that in 2022, “the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably. Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace.”

However, Assetz Group chief executive Stuart Law says: “I fundamentally disagree with the level of that slowdown that is expected and instead expect to see continued house price growth throughout the year in the region of 8 to 10%.”

He explains: “There is going to be much speculation around rising interest rates this year especially given inflation and rising living costs, but I think we will see far less in terms of actual movement over the coming year than would be needed to slow house price inflation.

“For instance, I would be very surprised to see the base rate go above 1% or so as the Bank of England has to consider the post covid recovery alongside its response to inflation as well as rather more informally, given its official independent status, the effect of rising rates on government debt servicing costs. With the peak in inflation potentially now being passed, the pressure to raise rates will subdue we feel over the next year.

“I don’t, therefore, see minor interest rate increases outweighing the relatively low supply of new housing and also the exceptional demand we are still seeing from home movers motivated by a strong desire to adapt their lifestyle to the reality of a post-pandemic world, and all that brings.

“Similarly, new regulation due to come into force around the environmental credentials of new builds, building safety and the quality of new homes is likely to support price growth, as will continued problems with the supply of labour and materials.

He concludes: “All of these challenges put pressure on build costs and facilitate compensatory price growth, especially for new builds, which we already know are increasing in price far more rapidly than older properties.”

And James Pendleton property expert Lucy Pendleton says: “This boom just refuses to cool its heels, which is fantastic for downsizing retirees but spare a thought for first-time buyers (FTBs). Affordability pressures for younger borrowers, the market’s vital new blood, are a real concern for 2022.

“What kind of year aspiring homeowners are going to have will depend largely on wage growth and its ability to keep pace with a market being propped up for now by low supply and cheap borrowing.

“A lot has changed in 12 months, both in terms of property prices and Covid. People are sensing the end of the pandemic and the race for space is now being challenged by the return of location as the dominant consideration.

“City living is coming back into fashion so the defining trend of 2022 is likely to be a readiness among more buyers to commit to city living once again. This is what was missing during the most uncertain periods of the pandemic.

“Younger people and FTBs are a particularly strong force helping to drive this trend. For now, FTBs are still very active and they’ve been chasing price harder than anyone else at times recently.

“Another sign that London, in particular, is set for a stronger performance this year is that purchase demand normally follows rental demand. With the rental market in London having run red hot throughout 2021, the capital is set to steal back a bit of the limelight while the rest of the country broadly cools off.

“It’s in the UK’s regions that things could change quite dramatically if stock levels improve. A key driver of this will be the many potential vendors who held off selling during the pandemic but now, having seen the light at the end of the tunnel, are returning to the market.

“This is going to exacerbate a slowdown in growth in 2022 and you could even see some falling prices in those areas that have seen the biggest increases.”

Source :Mortgage Finance Gazette