The pandemic has increased demand, limited supply, and created the perfect storm in the housing market. Innes Allan is Caledonia Bureau Glasgow’s newest partner, and has worked for some of Glasgow’s leading estate agencies resulting in an exceptional level of knowledge when it comes the ins and outs of the property market in Scotland. Here, he analyses the outlook for the UK housing market in 2022 and takes a look at the latest reports on house prices in Scotland.

The outlook for 2022

According to recent figures from Zoopla, the housing market in the UK will have its strongest year since 2007 this year.

The latest monthly House Price index shows that sales volumes and house price inflation this year has been unprecedented – and this is no surprise to us at Caledonia Bureau. The fast pace of the property market has been driven by low mortgage rates, the stamp duty holiday at the start of the year, and a re-evaluation of buyers’ priorities. What’s more, demand for property has far outweighed supply – in particular, three-, four- and five-bedroom family homes. This high level of demand has characterised the property market since May 2020 which has been running at 30% above the five-year average since the summer months. There had been an expectation that houses prices would fall sharply at the end of the stamp duty holiday but with factors greater than the stamp duty holiday responsible for market conditions, prices steadily increased.

It is expected that demand for property will surpass levels recorded at the end of 2020, and the busy housing market looks set to continue into next year.

Supply and demand

At the root of the house price increases is the imbalance of supply and demand. This has supported house price growth in the UK which currently stands at 6.6%. All countries and regions of the UK have seen growth rates that exceeded the five-year annual average (except for London which has registered the lowest house price inflation).

After the first lockdown from March to June 2020, the property owners at the top of the ladder were the first people to move as mortgage availability for high LTV deals were largely pulled from the market making it difficult for first-time-buyers to realise their dream of home ownership. However, this year mortgage availability improved with the return of 5% and 10% mortgages following the government’s Mortgage Guarantee Scheme – which prompted lenders to start to broaden their product offering – and as a result the mix of movers is now returning to more normal levels.

The outlook for house price inflation and number of property sales across the UK is expected to be a balance of positive and negative influences next year.

We are still seeing the effects of the pandemic on buyers’ priorities as the hybrid of office and home working has resulted in the need for more internal and external space although buyers are less frantic in trying to move. We are also still seeing exceptional financial gains for homeowners in terms of the value of their homes.

Momentum to continue

Looking towards 2022 we believe that market momentum will come from the ongoing requirement for more space resulting from hybrid working, an increase in equity and lack of supply – all of which support house price inflation.

However, we are seeing an increase in the cost of living, reports of high inflation levels, higher mortgage rates, a cut in benefits and an increase in tax. We may also see unrealistic expectations from sellers around house prices given what we have witnessed this year. These factors could directly impact household buying power.

According to Zoopla, housing transactions could decline by 20% from their high of 1.5m in 2021, to 1.2m in 2022 which is in keeping with the long run average (although still relatively high compared to the last ten years). The portal expects 3% house price growth by the end of next year with London remaining low at 2%.

Mortgage rates look to increase next year 2022 ending the year closer to 3%, but a rise in mortgage rates will impact sales volumes rather than prices. Existing homeowners are protected from high mortgage rates as more than 80% of mortgages are on fixed rates, many for five years or more, and over the last few months many people have looked at changing their current deal in anticipation of rate rises.

A cooling off in the housing market?

Looking at the latest figures from Halifax, UK house prices increased for a fourth month running in October, climbing above an average of £270,000 for the first time. However, the lender predicted a cooling off in the market over the coming months if the Bank of England raises interest rates.

The average cost of a home rose by 0.9% on the previous month after increasing by 1.7% in September due to several factors, including first-time buyers supported by help with deposits from their parents, improved access to mortgage deals and low borrowing costs.

Halifax also reported that house price growth would remain strong and that the annual rate of house price inflation – 8.1% compared to the same month last year – was the strongest since June.

What’s happening in Scotland?

House prices in Scotland have increased by 13.2% in Scotland according to the latest figures from Chartered Surveyors Walker Fraser Steele. All but two of the local authority areas have seen prices rise over the past year with the average house price standing at £21,832 in Scotland. the largest increase was seen in Inverclyde at 6.3%, followed by East Dunbartonshire with an increase of 5.2%.

Five local authority areas were responsible for a 58% positive movement in Scotland’s average house price in September. These were (in order of influence) South Lanarkshire, the City of Edinburgh, Glasgow City, East Dunbartonshire and Highland.

Upward momentum is continuing at pace and we are seeing house prices and rental values continue on an upward trajectory despite an inevitable rise in mortgage  rates.

Competition for good quality homes is fierce here in Glasgow and we are seeing plenty of high-value sales particularly in Glasgow’s West End. We have an exceptionally high number of registered buyers who are ready to proceed with a house purchase many of whom have just missed out on a property – sometimes several.

We can’t predict what will happen next year, but the general feeling is that we won’t see a house price fall but that prices will continue to grow – albeit at a slower pace. Obviously the market will be affected by a rise in interest rates and an increase in the cost of living – but based on our enquiry numbers we predict a busy start to the year in both sales and letting.

Give us a call if you would like a no obligation valuation – or to take advantage of the high number of tenants seeking good quality homes in Glasgow and Central Scotland.

Innes Allan

Partner – Caledonia Bureau Glasgow