Are we in for a house market crash in 2022?

Kate Berrisford
September 1, 2022

The average UK house price has been growing steadily for many years but, recent political and economic factors have people wondering whether we are in for a housing market crash in 2022.

Interest rates are at a record high. That affects the ability of prospective buyers to afford mortgage rates. And homeowners with tracker mortgages that are linked to interest rates, may also find it increasingly challenging to meet their mortgage repayments.

For anyone wanting to get on the property ladder as first time buyers, it's a daunting time to sign a mortgage deal with the prospect of rising mortgage rates, big deposits being required, and uncertainty about a looming recession.

The Bank of England has predicted a recession in the last quarter of 2022, as soaring inflation and the rising cost of living in the UK affect the daily lives of the nation.

It's understandable then that there is concern about the future of the housing market. Particularly given that the 2008 recession resulted in house prices plummeting.

However, despite this concern, most experts predict that while there may be cooling of house price growth, there is still strong demand for property and limited housing supply. That means that a house prices crash is unlikely.

The average house price in the UK is £283,000, according to the Office of National Statistics (as of May 2022). This reflects an annual average house price growth of 12.8%, compared with the preceding year.

But by June, data from the UK House Price Index showed that house price growth is slowing, in addition to there being fewer property transactions taking place.

Below we look at the current state of the housing market in the UK, the predictions for the property market in 2022, and what's in store for house prices in future.

What's the current state of the housing market in the UK?

When it comes to assessing the current state of the housing market in the UK, there are several metrics to bear in mind.

The first is average house prices in the UK, which have been steadily increasing for several years. This annual growth in house prices is also an indicator of state of the property market.

Other factors to bear in mind are current interest rates (which are on the rise), the availability of mortgage finance, and the affordability of housing compared with average salaries.

It's also worth looking at housing stock, household finances and disposable income. And when it comes to assessing the market as a whole - it's important to also look at the buy-to-let market, the size and growth of the rental sector, and average rental prices to get a general overview of the property market as a whole.

And finally, to understand property markets, it's important to also understand the current political and socio-economic climate, geopolitical tensions and other global economic trends.

There can be a mix of factors that can lead to a housing bubble, cost of living crisis, a property market downturn and ultimately a property crash.

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Average UK house prices in 2022: an overview

Average house prices in England for August 2022 are £365,173, according to the Rightmove's House Price Index.

Combined with high interest rates and a population struggling to afford the current living expenses, this average price makes it quite challenging for first time buyers to get onto the property ladder and to purchase a property.

And although interest rates in the UK have historically been very low, which has made borrowing for a mortgage relatively inexpensive - there have been some sudden and big increases to interest rates of late.

That means that many people with mortgages will now be paying higher rates (unless they're on fixed rate mortgages). And anyone needing to remortgage their home may not find as attractive mortgage deals as in the past.

It's likewise important to bear in mind that property purchasing patterns changed during the pandemic. Many people chose to buy property away from big cities - as a result of increased remote work options.

And there's been a shift in the type of properties that are in demand, compared with pre-pandemic.

In addition, the government's recent Stamp Duty holiday meant that many people were incentivised to buy properties over the course of the last 2 years.

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Overview of the UK property market

The UK Land Registry's House Price Index, which is based on sales prices, shows that average house prices rose by 7.8% over the last year. Based on actual sales over the last year, the average home value is currently £286,397 (as of June 2022).

And more recently, according to Rightmove's House Price Index, "national average asking prices have more than doubled (+134%) from £155,994 to £365,173" since the Index was launched 20 years ago.

But there are signs that the growth in house prices in the UK is starting to slow down.

This is a combined result of the increased cost of living, rising inflation, increasing interest rates and higher mortgage rates.

Rightmove's Director of Property Science, Tim Bannister, says:

“Several indicators point to activity in the market continuing to cool from the lofty heights of the last two years.

It’s likely that the impact of interest rate rises will gradually filter through during the rest of the year, but right now the data shows that they are not having a significant impact on the number of people wanting to move.

Demand has eased a degree and there is now more choice for buyers, but the two remain at odds and the size of this imbalance will prevent major price falls this year."

In addition to average house price growth slowing, there is also a slight easing of demand when it comes to property purchases. On the flip side, there is increasing rental demand, a diminishing supply of rental properties, and an increasing number of renters across the UK.

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2022 UK housing market predictions

Multiple factors are contributing to fluxes in the UK housing market. Global political tensions, domestic politics, the onset of an imminent global recession, the recent cost of living crisis in the UK, rising interest rates - together with soaring inflation - could all culminate in a UK house market crash in 2022.

But what research and data is there to support this prediction?

According to Knight Frank's Intelligence Lab:

"Supply is rebuilding more gradually than anticipated, which means price growth is expected to end the year in high - rather than mid-single digits."

Knight Frank also predicts that by the end of 2022, supply will be building and demand will be constrained by rising mortgage rates and high inflation.

Knight Frank also forecasts that the annual house price growth will reach 8% by the end of 2022, before slipping to 1% in 2023. By comparison, Rightmove forecasts that house prices will rise nationally by 5% by the end of 2022.

Zoopla also predicts similar smaller increases in average house prices and say they "expect to see a decrease in demand for homes in aspirational rural or coastal areas in the next few months."

Lawrence Bowles and Ed Hampton from Savills similarly report on the market's current momentum being retained, but foresee that this will likely slow as economic challenges mount. They also note that "demand is being tempered by increasing affordability challenges" and that interest rates are expected to keep rising.

And finally, according to EY's UK Chief Economist, Peter Arnold:

“There are certainly a number of signs pointing to slower house price growth though. The ratios of house prices to average incomes, and of average mortgages to incomes, are already at record highs, for example. An increase in the cost of living may also prompt some prospective buyers to become more cautious or to struggle to afford a deposit.

“But the squeeze on demand is being counterbalanced by a continued squeeze on supply and even a significant, sustained expansion in housebuilding would be unlikely to have a material impact on average prices.

Meanwhile, rising interest rates are unlikely to affect homeowners in the same way they would have done previously, with the dominance of fixed-rate mortgages meaning rate changes will take some time to filter through to borrowers.

Crucially, the economy is also not seeing the high levels of unemployment that have been a key factor in previous house price contractions.”

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Will property prices crash in 2022?

It's of course difficult to predict what the future will hold.

And given uncertainty about current geopolitical crises, domestic political turmoil, the energy crisis, and whether the UK will enter a recession - it's even more challenging to make predictions as there are so many variables.

However, many experts think that a UK housing market crash in 2022 is unlikely.

That's because there is still strong demand to purchase property and a dearth of available properties coming onto the market. These factors help to keep prices stable.

But, although there may not be a market crash in 2022, there are signs that the property market is going to experience much slower growth than in the past.

That is linked with the current rapid rise in energy prices, rising inflation, and general cost of living increases. Many people just won't have the capital to put down deposits or the disposable income to afford mortgages.

As average house price growth stagnates, capital appreciation for property may be slower than in previous years.

That means that if you were hoping to buy a property at a reduced rate by the end of the year, that may not happen. Most experts are not predicting a significant fall in house prices over the medium or long term.

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What's in store for house prices in future?

A variety of experts have weighed in on the future of UK house prices.

UK estate agency, Knight Frank, has predicted in their 5-year sales forecast that average house price growth will reach 1% for 2023, 2% in 2024, 2% in 2025, and 3% in 2026.

How the housing market will play out in 2023 and beyond, remains to be seen.

It's particularly challenging to predict that far into the future, given the number of socio-economic and political changes happening in the world. The COVID-19 pandemic has shown us how economies can be rapidly transformed.

In the short term it appears likely that average property prices will remain in an upward trend, albeit slower growth than usual.

But if inflation continues to rise, and as more households feel the pressure of the cost of living, economic growth could slow too. And as interest rates rise, this may also add pressure to already constrained prospective buyers.

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If there were a house market crash, how would people be affected?

If the UK property market were to crash, there are many impacts that would be felt by investors, developers, home owners, landlords, tenants, estate agents, lenders and anyone with a vested interest in the UK economy.

For starters, banks who had lent people money for mortgages may struggle to recover those funds. That may result in banks no longer being able to issue many new loans.

This may hamper business investment and could also reduce public spending, triggering a recession (if there wasn't one already). This could wreak havoc with financial markets, and unemployment may rise as a result.

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How to use Pivro to uncover property market insights

If you're looking for the latest property market insights to determine the best area to invest in, to find the best buy-to-let area, or to find house price sales comparisons - then Pivro's AI-powered property analytics platform can provide a solution.

While Pivro may not be able to predict a property crash, it can provide real-time information about the property market.

Curating multiple data sources on one easy-to-use platform, Pivro is able to provide some of the most insightful market research data in the UK.

For example, you can search areas for properties based on sale values, rental yields, and return on investment. This can help you make smarter data-driven property decisions.

Final thoughts on the future of the UK housing market

If you're an investor considering purchasing the perfect buy-to-let property, a first time buyer looking for your dream home, a property developer looking for opportunities to create good return on investment or a homeowner paying off a mortgage - then you're most likely very interested to know if we're in for a housing market crash in 2022.

There are a myriad of factors that have led to the global economy being on the precipice of recession. In the UK, these factors include current geopolitical tensions, economic recovery from the pandemic, soaring energy prices and spiking inflation. All of these factors have culminated in a cost of living crisis, making it more tough for people to afford to purchase property.

For now, most experts are of the opinion that the UK isn't in for a housing market crash, although some cooling of house price growth is inevitable.

Contact Pivro

To learn more, contact Pivro and speak with a marketing automation for property professionals expert who can answer any questions you might have.

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DISCLAIMER: Please do not consider this tax, financial, mortgage or legal advice. We’re simply sharing general information, and we highly recommend you speak to a registered and qualified professional about your individual circumstances before making any decision based on the information provided on this website.

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