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UK Property - 2021 Review & 2022 Forecast

Where to start? It’s hardly been a ‘normal’ year.

Covid-19 cases continued to rise in the New Year and through the Winter, with expected restrictions on all of our lives, movement, and economic activity, not to mention its devastating effect on families and businesses.

And let’s not forget the unprecedented support for different sectors, including the housing market in the form of the Stamp Duty holiday, and the Bank of England Base Rate that was kept at a historic low of 0.1%.

2021 in Review

The housing market has shown remarkable resilience throughout 2021, with house prices continuing to rise. During the early part of the year, we were still suffering the hangover of lender anxiety from 2020, where many deals were withdrawn and lending criteria tightened up. There were very few 95% mortgages at this time, but the introduction of the Mortgage Guarantee Scheme in the 2021 Budget began to address this problem, and more deals have reappeared since then.

Supply and demand have been a real issue and remain a feature in our 2022 property forecast. This has been driving rising house prices. In the past, this could have caused the housing market to overheat, but the combination of the Stamp Duty holiday and record low interest rates have meant that this has not happened. Even the anticipated slowdown at the end of the Stamp Duty holiday didn’t really materialise.

The Rental Market

There is, of course, a knock-on effect from the residential market into the residential lettings market. For those property investors with established portfolios, they have seen their investments increase in value significantly during 2021. However, furlough and job losses have meant that many tenants have faced financial hardship and struggled to keep up rental payments. Protections put in place by the Government have prevented evictions, and in any case, many landlords have worked with their tenants to support them through difficult times. Those rental payments must be paid so in the medium to long term, landlords will recover their losses, even though they have suffered a short-term loss of rental income.

For landlords seeking to evict problem tenants, there has been an issue. The courts closed for a significant period, and there is now a backlog of cases to get through. For those landlords wishing to evict problem tenants, what is usually a lengthy process has become even longer, with the resultant even higher losses.

However, rising house prices mean higher rental values, so over the medium term rental yields will increase. The usual suspects in terms of regions are performing very well, in the North East, North West, and The Midlands.

2022 Property Forecast

We will look at three key drivers in our property forecast for 2022 that will impact the housing market:

  • Inflation

  • Interest Rates

  • Supply and Demand

Inflation is already rising in the UK, standing at 4.2% at the end of October. Panic buying of fuel and the resultant rise in prices has impacted this, but nevertheless, inflation is rising, which will impact household income. That means less money for higher mortgagee payments for people moving to larger homes. This could also fuel the shortage of smaller homes as people opt not to move home.

Interest rates are forecast to rise during 2022, which will affect mortgage interest rates and the deals that lenders have on offer, so expect the cost of borrowing to rise as well. This will also affect disposable income, so could slow the market somewhat. The good news though, is that if the market does slow, demand will also slow, which could cool off house prices somewhat.

Finally, supply and demand are currently a real issue and the main driver for increasing house prices. This is forecast to continue into 2022, but this could cool if interest rates and inflation have an impact, which is likely. It is possible that more properties will come onto the market as some buyers who have delayed selling during Covid decide to sell despite the higher cost of borrowing.

Property Forecast 2022 for the Rental Market

As mentioned earlier, performance in the housing market directly affects the rental market, so inflation, interest rates, and supply and demand will affect rentals, albeit in slightly different ways.

First of all, for investors, the outlook was forecast at the beginning of 2021 to be positive, and that forecast remains. The table below (Source: Savills Research), shows the forecast property values for the next 5 years. Clearly, property portfolios will increase in value over that period. That will increase rental yields as well as landlords are able to command higher rents. Supply and demand also have an impact as people may be forced to rent if they are priced out of the buyer market. And where there is investment in infrastructure and local regeneration like the Midlands Engine and Northern Powerhouse, pressure is put on housing stock as people move into those areas to take on new jobs. That puts pressure on demand which also leaders to increased rental yields.

Despite the Covid-19 pandemic, the economy has faired remarkably well, so while there has been a degree of uncertainty during 2020 and 2021, the housing market has continued to show surprising resilience.

What are the areas to look out for in 2022?

For both first time investors and portfolio businesses, the North and Midlands will present strong opportunities. Not only is growth forecast at 4%, but property prices are still relatively low compared to the rest of the country, and far lower than London. That makes property investment affordable for first time investors, and reduces risk to portfolios thanks to the reduced exposure to borrowing.

London is forecast to perform well in 2022 and for the next 5 years, but property prices are already very high, so the cost of borrowing and is far higher. This is an area for professional investors who understand the risks involved, and are able to finance properties that could easily be in the £million + bracket.

Property Forecast 2022 Final Word

There’s no question that the last two years have been uncertain, challenging, and difficult, and there are still challenges to come for the housing market and property investors.

Government support has undoubtedly helped the market, but there also seems to have been an inbuilt resilience that no one expected would hold the market together. Moving into 2022 there is much to be positive about, and opportunities for property investors of all sizes, especially in the North and Midlands.


Ancojada Limited is not authorised or regulated to provide financial advice.

All financial advice is provided by other regulated businesses.

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