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Housing Market Predictions for 2021 and 2022 in the UK

In 2021, strong demand and a lack of supply resulted in the fastest moving ​​housing market in the UK in the last five years. In the wake of the pandemic and COVID-19 related lockdowns, there were fewer properties to meet demand and house prices in most areas of the country increased more rapidly. As lockdown restrictions ease, the UK housing market shows signs that it’s beginning to readjust, but what will happen to the market for the remainder of 2021 and through to 2022? Is now a good time to purchase property or should investors hold out? In this article, we take a look at housing market predictions for 2021 in the UK.

UK Housing Market in 2021

With the UK remerging after several national pandemic-related lockdowns, the housing market saw a flurry of activity due to pent up demand. The Stamp Duty exemption, introduced in July 2020 and extended until June 2021, saw the market boom as buyers rushed to benefit from the tax cut. The Stamp Duty Holiday also contributed to the sudden rise in house prices during the pandemic – UK property prices are around 13% higher than pre-pandemic levels, with the average home now worth £248,857.

The pandemic also saw more homeowners rethink their priorities in terms of what they are looking for in a property. Many buyers are looking for more space, larger gardens and an extra bedroom or home office. We are even seeing a shift in where people want to live as homebuyers reconsider quality of life beyond what cities have to offer and look at property further afield in rural and seaside locations where they can get more space for their money.

In terms of the rental market, outside London, rents are rising at their fastest rate for 13 years. Locations popular with tenants leaving London have even seen rents jump by up to 25% and many Northern cities are recording healthy rental growth. Tenants are competing for properties in the housing stock as they reevaluate their lifestyles post-pandemic and try to pin down properties with sought-after features. In addition, with booming house prices in 2021, many landlords sold their properties, resulting in a shrinking supply of available rental properties when demand is high. Towards the end of 2021, average rents, excluding London, sat at around £790 per calendar month, up from £752 a year earlier, meaning the market continues to perform well for landlords that have sought-after properties in desirable locations.

UK Property Market Forecast

UK Property Market Forecast 2021 and Beyond

With Stamp Duty Tax returning to normal rates in October 2021, the UK property market forecast in 2021 expects property prices to fall due to less demand for buyers looking to complete a sale before the deadline to save on tax. Similarly, fears of a spike in inflation could mean that interest rates rise, which reduces mortgage affordability.

However, while property transactions are likely to slow down, the vaccine rollout and general reopening of the country is likely to give a boost to the economy. Despite an expected slowdown over the remainder of 2021, transactions are still expected to surpass 1.6 million this year – 35% higher than the national average for five years before the pandemic. It’s likely that while the market will correct itself with a slowdown in price growth, a total collapse of the market is unlikely.

Will UK House Prices Go Down in 2021?

Throughout the pandemic, the government Furlough Scheme ensured that household income wasn’t much affected. With the end of the Furlough Scheme in October 2021, we may see an increase in people losing their jobs and being unable to afford their mortgage. If people sell their homes as a result of this financial squeeze, housing supply will increase which could cause prices to fall. At the same time, the end of the Stamp Duty holiday is already seeing fewer people rushing to buy, and we saw a plunge in property transactions in June as the stamp duty came to an end. Interest rates are currently at a record low and if they rise, mortgage rates are likely to become more expensive which would slow housing demand. Looking at these three trends, and the rapid house growth in 2021, house price predictions state that prices will go down towards the end of 2021.

However, we are seeing trends impact the popularity of houses in demand, and for properties that remain sought-after, prices look like they may remain robust. As buyers look for more space – a bigger garden, larger property or extra bedroom – there has been a surge in demand for three and four-bedroom homes in particular. The market for these homes is more competitive where fewer people want to sell and there are currently 30% fewer listings for three and four-bed detached homes coming onto the market than the same time last year – one of the reasons that prices for these properties have reached record highs.

UK housing market price fluctuations

Will UK House Prices Drop in 2022?

The rapid increase in buyer demand seen in 2021 and strong house price growth means that there will be less capacity for growth in the next few years. With the end of the furlough scheme and stamp duty holiday, many are holding off in the hopes that house prices will drop in order to secure a bargain. While many predict this dip will happen, nothing is a sure thing and there are no guarantees what will happen to the market.

If you are looking to secure a buy-to-let property, it might be worth waiting until the first two quarters of next year to see if you can secure a property at a lower price to boost rental yield potential. However, if you are looking for a home and need to move fast, it might be better to take action rather than wait for something that may or may not happen.

Property Market Predictions for 2022

Something investors and property buyers should take note of is the fact that the UK housing market is seeing large regional variations. Areas outside London are expected to see the most growth in the coming year. For example, the North-West and Yorkshire and Humber region is set to lead house price growth – around 28% increase through to 2025. Growth in the capital is set to remain the lowest for any UK region, around 12% increase through to 2025. Overall, between 2022 and 2025, UK house price growth is expected to sit at between 11-12%, and through to 2025, it is set to increase by a total of 21.5%.

Regional parts of the North will lead the way, and now is a great time to consider properties in rapidly developing Northern cities, particularly for those looking to make a buy-to-let investment (read more about the best buy-to-let areas here). Major investment is being channelled into the North, and combined with the COVID trends of people wanting more space for their money and a change in the pace of life as well as new job opportunities in 2022, we are likely to see a North-South house price growth divide.

When it comes to housing market predictions for 2021 in the UK, no one has a crystal ball, but with this year’s sky-high prices combined with the end of the furlough scheme and Stamp Duty Holiday, it looks like the housing market may begin to readjust. It’s a good market for landlords and through 2022 properties in the North are expected to perform well. To find out more about housing market predictions for 2021 in the UK, get in touch with our experts.