With property prices reaching £276,759. Various factors such as the rising rate of inflation, the increase in mortgage rates, the imbalance between demand and supply and changing buyer preference have led to this sudden spike in property prices. If you’ve been thinking about investing in the UK property market in 2022, it might be a good idea to get in touch with a property advice service before making such an investment. With house prices surging again as the strong buyer demand continues, what does 2022 hold for UK property prices? This is what the experts have to say.

The imbalance between demand and supply

In 2021, most experts believe that the average price of property will only grow by 3 per cent to 5 per cent in the year 2022. However, with the average price of property hitting a record high in January 2022, it seems that the experts might have to reconsider the price growth. For one, the imbalance between the demand and supply in the housing market is what has led to this sudden rise in property prices.

Due to the uncertainty around Covid-19, many sellers were scared to put their property on the market. Initially, the property market in the UK was in a lull. In order to boost the real estate market, and thus boost the economy, the UK government came up with the stamp duty holiday which was a temporary suspension of the stamp duty tax. This led to a massive surge in potential buyers who were looking to save some money on their new purchases. To help new buyers enter the property market, the UK government announced the mortgage guarantee scheme under which buyers and investors could secure a mortgage by paying just 5 per cent of the total value of the property as the deposit. Again, this scheme further led to an increase in demand. While the number of potential buyers started to increase, and the number of people who got in touch with estate agents increased drastically, the supply remained stable. So, while the buyer demand was at its highest, the supply was comparatively low, which is what led to the surge in property prices.

The Royal Institution of Chartered Surveyors believes that this trend will continue in 2022. The number of new buyer enquiries, as well as new tenant enquiries, has risen drastically in South East and in London. Surprisingly, these were the two areas that were impacted the most during the covid-9 pandemic. In fact, experts are predicting that the average price of property in London and the South East will rise swiftly within the next three months. Keep these stats in mind, experts believe that the chances of property prices falling during the inflation period are actually very low.

The change in buyer preference

During the Covid-era, there was a massive shift in buyer preference. As people started working from home, they were looking to improve their lifestyle, their homes and their standard of living. First-time buyers, homeowners and tenants were now looking to move into bigger and better homes, preferably with private gardens. One major demand among buyers and potential buyers were spacious homes with outdoor spaces or spacious homes that were within close proximity to outdoor spaces. Even the demand for homes with balconies, patios and terraces increased in 2021. There was also an increase in the demand for properties with spare rooms or a garage, as these extra spaces would be converted into home offices.

Instead of living in the city centre, people were now looking to move to the outskirts and the boroughs, where they could buy bigger homes at relatively affordable prices. Since the commute to work was no longer an issue, people were choosing to move out of the city and into the suburbs. That is one reason that prime properties in London actually saw the least growth pace, which was unexpected. Of course, as offices start to open up and companies start calling their employees back to work, it is expected that the demand for properties in the city will start rising again. However, this fact still circles back to the same imbalance between demand and supply, as the demand for city-centre properties will suddenly rise while the supply will remain consistent, thus further increasing the property prices in the coming months.

The impact of inflation

The UK has reached a state of inflation, with the Consumer Price Index rising by 5.5 per cent in the last year itself. Also, the Retail Price Index is expected to increase by 5 per cent in 2022, which is another sign of inflation. As the rate of inflation continues to rise, so will the cost of living. Of course, this will have a direct impact on property prices, as well as rental prices.

In order to combat inflation, the Bank of England decided to increase the rate of interest. That means banks and lenders will also increase the rate of interest on existing mortgages, as well as current mortgages, which will in turn make a mortgage more expensive. However, 2022 will be the year where low deposit mortgages, as low as 95 per cent, will make a comeback. So, while the interest rates might continue to rise, the availability of a low deposit mortgage will certainly lure potential buyers and investors. So, while inflation will have an impact on the economy as a whole, the housing market will probably continue to thrive due to the increase in buyer demand, while the supply side will still remain very low. With that being said, it is almost impossible for property prices to fall in the UK in 2022. However, the growth pace of property prices is something that is yet to be determined.