- Halifax’s measure of house prices joined its Nationwide counterpart in showing a further rise in house prices in January. Monthly growth of 0.3% was the slowest since last June, but this still left the year-on-year increase unchanged at December’s 9.7%.
- The balance of forces influencing house prices point to slower growth as 2022 progresses. Housing demand will not receive the support offered by last year’s stamp duty holiday. And the rising cost of living and higher interest rates will weigh on price growth.
- But with most mortgage holders on a fixed rate, the short-term impact of higher mortgage rates will be limited. More stringent mortgage regulation means borrowers are better able to deal with higher rates. And policy makers have shown themselves willing to intervene to support the housing market. So the EY ITEM Club thinks 2022 will be a year of slow, but still positive, growth in house prices.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Recent months haven’t been short of new house price records. January brought another, with a 0.3% month-on-month (m/m) rise in the Halifax measure of house prices taking the average price to a new record high of £276,759. However, growth in prices in January was the slowest in six months, and presented a less strong picture than the Nationwide measure, which showed prices up 0.8% m/m.
“January’s slowdown in the Halifax measure may be a sign of things to come. This year won’t see a boost to prices from the stamp duty holiday which ran through much of 2021. To the extent the tax holiday brought forward purchases, its after-effects may drag on housing market activity in the near term. Moreover, the EY ITEM Club thinks the Bank of England will add to recent rises in interest rates by raising rates twice more this year, pushing up mortgage rates. And the rising cost of living faced by households from higher inflation and tax rises mean it’s likely that fewer people will be able to afford to borrow the necessary amount they need to buy at higher mortgage rates.
“But while house price growth will probably cool this year, the EY ITEM Club doesn’t expect prices to fall. The pile of unplanned savings built up by households during the pandemic will go some way to offsetting the income squeeze. And with around 80% of the stock of UK mortgage debt at fixed rates, most mortgage holders are well insulated from increases in mortgage rates in the short term. Meanwhile, the more stringent affordability criteria and mortgage regulation introduced during the 2010s mean recent buyers should be better placed to cope with higher mortgage rates than in the past. And the clear message of housing policy in recent years, such as Help to Buy, the stamp duty holiday and the mortgage guarantee scheme, is that policymakers are willing to do what it takes to avoid a significant fall in house prices.”