UK house price boom – Will it continue?

Last year saw a substantial increase in house prices. A new study has shown that the UK housing market has surpassed many other countries, in part due to some buyers amassing savings during lockdown.

According to Knight Frank’s global house prices index the value of homes across 56 countries and territories increased by 9.4 per cent on average – with 96 per cent of all markets enjoying positive price growth.

The UK ranked at 21 out of 56 markets, registering 11.8 per cent nominal annual growth and eight per cent in real terms, adjusted for inflation.

However, the top location for property value growth was Turkey in nominal terms while South Korea led in real terms.

Knight Frank’s latest data is not far off the Office for National Statistics’ (ONS) own data in the UK House Price Index. According to the latest figures from October, the annual rate of house price inflation was 10.2 per cent, with the average home costing £268,000.

With such a strong upward trend in property prices in the UK, are further increases anticipated in 2022?

One new obstacle, which may lie in the way of homeownership or investment for some, is the Bank of England’s (BoE) decision to raise UK interest rates to 0.25 per cent in December.

This followed a sharp rise in the inflation figure, but now sits against a backdrop of the COVID-19 Omicron variant, which is likely to cause another slowdown in the economy.

The initial result of the rise was that tracker mortgage rates increased, making mortgages dearer for customers with standard variable rate home loans.

The rate rise is also likely to mean higher initial rates for those seeking a new fixed-rate mortgage, which may be off-putting for some purchasers.

The BoE said: “The labour market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures.”

It added that: “Although the Omicron variant is likely to weigh on near-term activity, its impact on medium-term inflationary pressure is unclear at this stage.”

The availability of buyers, curtailed by the higher costs of mortgages, could dampen the property market – especially given the general cost crisis that the UK public faces.

Nevertheless, much of the recent boom in property prices has been driven by supply vs demand rather than any other factor.

The UK only has a limited supply of housing and the speed at which new homes are being built, especially at the lower end of the market, will mean that buyers can continue to ask more for their properties.

This is particularly true in areas of high demand with good transport links, schools and other amenities. Meanwhile, with many people moving to a work from home or flexible model of working, commuting distance may be less of an issue for some people, meaning that rural areas are favoured, pushing up prices in these regions.

Link: Knight Frank’s global house prices index: Q3