95% LTV mortgages will support the continuation of house price growth.
Global commercial real estate firm Colliers is predicting that house prices will continue to grow by around 4.2 per cent in 2022, due to suppressed housing supply and five per cent deposit mortgage options.
While 2021 was a bumper year with house price growth reaching around nine per cent* across the UK (up from 0.9 per cent in 2019 and three per cent in 2020), largely due to the time-limited stamp duty holiday, growth is not expected to stall this year, and will instead remain in line with the ten-year average of 4 per cent in 2022, and an average of 3.5 per cent over the next five years, predicts Colliers.
Figures from the Office of National Statistics indicate that construction of new housing has slowed in recent months, highlighting that once again house building is unlikely to meet the Government’s target of 300,000 new homes a year. Raw material and labour shortages as well as rising labour costs are thought to have contributed to this downturn in construction activity.
Andrew White, head of Residential and International Properties at Colliers said: “Not once has the Government’s house building target been achieved, even when it was at 250,000 new homes a year two years ago. This lack of new supply will ensure a continuation of house price rises, alongside the return of five per cent deposit options and the Bank of England considering relaxing stress testing as well. Following a bit of an exodus from cities during the pandemic we saw prices in regional areas start to soar, but that will stabilise this year, although areas outside of London will continue to be more attractive to international buyers than they have been in the past. All of these factors combined is why we anticipate there will be a 4.2 per cent increase in house prices this year."
House prices across the UK have surged in recent months growing an annual average of 8.9 per cent in the 12 months to October 2021, compared to 4.7 per cent in London. Increased working from home means that some, particularly higher earners, are prioritising more space and moving to larger homes in locations outside of the main UK cities, as opposed to being situated close to their workplaces five days a week. However London prices are on the up again with the reopening of hospitality and leisure venues strengthening growth in the capital, while regional prices are expected to stabilise.
Andrew continued: “Institutional investors will also be looking at the regional cities for opportunities to put their cash into build to rent operations, where they can secure higher yields for lower capital values. We could see some major investments start to take place as those with established rents look to capitalise on their initial investment, exit and move on to the next scheme or investment.”
Oliver Kolodseike, head of Economic Research at Colliers added: “With interest rates expected to rise over the medium term, mortgage affordability will remain a main constraint to even stronger demand for housing. We welcome the re-introduction of 95% LTV mortgages and predict house price growth to average 3.5 per cent over the next five years. This is only slightly below the four per cent average witnessed over the past decade.”