Market outlook

With three base rate increases since December, many of us are wondering if the Bank of England’s tactics to rein in inflation have also taken the heat out of the housing market. As Head of Research for Cluttons, our latest Mortgage Visionary, Gráinne Gilmore, is better placed than most to tell if there are any signs of a residential slow-down and you may be surprised at what she’s seen in Q1.

Gráinne Gilmore is Head of Research at Cluttons, where along with the Research & Insight team, she produces market-leading property analysis and insights on all aspects of the sales and rental markets. Prior to joining Cluttons in 2020, Gráinne was Head of UK residential research at Knight Frank for 8 years, and before this she was an economics, business and finance journalist at The Times.

The start of the year is typically a busy time in the housing market, as homeowners and prospective buyers use the Christmas period to reflect on whether they’d like to be celebrating the festive season somewhere else in 12 months’ time. After the record levels of buyer demand in 2021, spurred by the pandemic-driven ‘search for space’ and the stamp duty holiday, a more muted start to 2022 would have been understandable.

As we predicted throughout Q4 last year, the pandemic-led trends in the housing market have further to run – not least the change in working practices for many office-based workers, opening up new markets for those who are no longer undertaking a daily commute.

Demand for family houses hit a five-year high in January, and demand for flats around the country also rose to levels not seen since before the pandemic. As the chart above shows, in the two months since then, buyer demand levels have eased slightly, but they remain elevated – rivalling the levels seen at the zenith of the stamp duty holiday.

The increases in property values over the last two years are also leading many to consider making a move in order to take the gains in home values. More than six million homes around the UK rose in value by more than £30,000 in 2021 alone.

Yet amid soaring demand, there has been a shortage of supply of homes for sale. The sheer level of activity in the market last year, with 1.5 million homes changing hands, quickly eroded stock levels, and increased interest from buy to let investors and first-time buyers (who have nothing to sell) put more pressure on stock levels and also pushed up prices, with UK house price growth at +8.1% at the end of February this year.

In the new homes market, high levels of demand resulted in more forward sales, as homes, especially family houses, were snapped up.

Activity in the market so far in 2022 is tracking slightly below 2021 levels but well above pre-pandemic levels, although total home sales agreed in London in Q1 now outnumber those agreed in Q1 last year. Supply is rising slightly, but the imbalance between supply and demand will continue to put upwards pressure on pricing.

However, there are greater economic headwinds ahead this year, not least the rise in mortgage rates that is widely predicted as the Bank of England continues to raise the base rate to combat rising inflation. There is also inflationary pressure from global uncertainty around the tragic events in Ukraine. Affordability constraints will also limit price growth in some areas. Overall, we forecast that average values will rise +3% in 2022, with more growth coming in areas where homes are more affordable – in the Midlands, the North and Wales.

The new homes market is also facing an additional change – the end of Help to Buy. This will effectively come into force in the autumn as sales after this point may not meet the final deadline of April 2023.

However, the current conditions in the market – specifically the rise in the value of homes over the last two years, signal there may be increased opportunity in the new homes market to appeal to downsizers.

Our new research, examining data from Cluttons, and Your Keys – Clutton’s sales progression tool – shows that buyers in older age cohorts (who are most likely to be considering moving to a smaller home and releasing equity) are still looking for sizeable properties, and that they are willing to move further to achieve a purchase of a new home that meets their needs.

To hear more about this trend, and for all of our research on all aspects of the market, visit https:/ Clutton’s New Homes research hub.