London street properties

20 Dec 2021

UK property market outlook 2022

At Investec we know many of our clients will be looking to buy or invest in property in 2022. Here, Vanessa Hale, head of insights and residential research at Strutt & Parker, and Camilla Dell, managing partner at property search consultancy Black Brick joined Investec Private Banker Cameron Atkinson to discuss the potential performance of the UK property market in 2022.

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Read highlights from the discussion:

  • How might property prices change across the UK market in 2022?

    Vanessa: Based on Strutt & Parker’s current residential forecast, we’re predicting prices in the UK property market to grow by 7% in 2022.

  • What did we learn from the 2021 property market?

    Vanessa: Much of our analysis draws on trends and transaction data over recent years. In spite of the pandemic, 2020 and 2021 saw very high transaction levels. We don’t see that activity abating in 2022.

    Trend-wise, the 2020-21 period also saw the so-called ‘race for space.’ With lockdown causing many homeowners to realise that their current property was no longer meeting their requirements, buyers have been looking for properties with office space, more bedrooms, and more outside space – requirements that we will continue to see over the coming year.

  • Considering transaction volumes, are supply issues a factor?

    Vanessa: There’s definitely a low stock challenge, particularly across the regions, and that is one of the major reasons why house prices are seeing such a growth trajectory. There’s a convergence of huge levels of demand with low supply, which we see continuing.

    Camilla: Although, when we talk about stock being limited, it’s very dependent on the type of property. In London, for instance, the story for houses is very different in comparison to flats. We’ve been exceptionally busy with clients looking to buy detached houses with decent-sized gardens. London village areas such as Hampstead, Richmond, Wimbledon, Dulwich and Barnes have been incredibly tight on supply as a result.

    Within the London flat market we’re not seeing the same supply issue as there’s considerably less demand. This is due, in part, to a decreased number of international buyers. We’re also seeing that fewer people want to rent in London, so there’s a lot of ex-rental stock hitting the sales market.

    In 2021 we also saw a particularly high volume of properties purchased off-market; last year 41% of properties we sourced were not being openly advertised, our largest percentage of off-market deals ever. This is set to continue in 2022.

  • What is the forecast for the Prime Central London market, specifically?

    Vanessa: We predict Prime Central London market prices to grow by 10% in 2022. This is being driven by transactions over £3 million, with particularly high interest in areas such as Kensington, Chelsea and Notting Hill.

    Although we haven’t yet seen international buyers return to the market post-Covid, if international travel is able to resume this year then further pent-up demand will be realised.

  • What are the current priorities for investors?

    Camilla: As we enter 2022, what’s interesting is the number of enquiries we’re receiving from potential investors, something which we didn’t really see throughout 2021.

    The potential investors we’re speaking to are typically either ultra-high net worth individuals, or family offices making large investments. They’re sometimes investing in entire blocks of flats, for example.

    We’re seeing fewer investors looking at buy-to-let (BTL) opportunities, but a number of enquiries for ‘bank of Mum and Dad’ purchases; clients are helping their children to get onto the housing ladder, while also seeing this as a quasi-investment.

  • What is the overall forecast for activity outside of London?

    Vanessa: Outside London the demand is also for houses over flats, with three-bedroom properties with a home office and a garden high on the agenda for most, and properties within the £500,000 to £700,000 price bracket seeing particularly high volumes of transactions. I don’t see that changing in the foreseeable future.

    Location-wise, we’re keeping a close eye on whether or not people are feeling the pressure to return to the office, as this will impact how far out of London they are willing to move. There’s still a certain number of ‘boomerang buyers,’ who moved to the country at the outset of the pandemic and are now seeking a return to the city.

    We expect that clients will remain hesitant to move too far away from the capital. Locations such as Norfolk and Hertfordshire will continue gaining in popularity as buyers seek somewhere that is outside of the city, but that remains within comfortable commuting distance.

  • What is the outlook for rental price growth in 2022?

    Vanessa: The combination of house price growth and supply shortages means that we expect to see growth in rental prices in 2022. At the same time, salary stagnation will cause many to struggle to get onto the housing ladder, creating further demand in the rental market. Overall, we’re predicting growth of 5% within the Prime Central London rental market in 2022.

    That said, there are challenges for buy-to-let landlords; new taxation and legislation that has been introduced during the last couple of years is making investment in BTL a less straightforward prospect, with many landlords stepping aside as a result.

  • Do you expect property values to see a period of sustained growth ahead?

    Camilla: Thinking about the London property market specifically, we are overdue growth in the market. Owing to factors such as Brexit, political uncertainty and tax changes, the market has been in decline since 2014. At the beginning of 2020 we were starting to see signs of recovery, before the pandemic began. But all things being well, I think we’re in for a positive five years ahead for the London property market.

    However, it’s always a challenge to forecast during times of such uncertainty. The advice we give our clients is that when it comes to investing in London property, you can’t take a short-term approach, particularly once you’ve factored in the cost of Stamp Duty. We advise our clients that they should be thinking about a minimum holding period of five years.

  • How much of a concern is long-term growth for homeowners, and how does this affect their search?

    Camilla: If you’re looking to buy a home to live in, the most important thing is that it’s the right property for you in the long term. You should be asking whether this is a property that is going to genuinely suit you and your family.

    For investors, of course, the considerations are different. In this instance you need to be looking at potential rental yield, prospects for capital appreciation, and comparable sales data in terms of pricing.

  • What sort of appetite do you see for buying homes to renovate?

    Camilla: As a result of Brexit the cost of both labour and materials has significantly increased. This is going to impact the number of people looking to buy ‘fixer uppers.’

    While it’s still completely feasible to do work on a new property, it may no longer be as straightforward to buy ‘cheap’ and end up with a property significantly more valuable. For anyone considering renovation, therefore, it’s very important to seek independent advice and gain a good understanding of the costs and time involved – as well as any planning consent required – before putting in an offer.

  • How much can these forecasts change and what are the key issues you’re monitoring?

    Vanessa: We assess our figures monthly, looking at data across the board – such as inflation, interest rates and so on – and examine whether or not we need to rethink our forecasts.

    Over the past two years, Covid-19 has had an enormous impact on our forecasting process. During the first lockdown when the world was at standstill, no one anticipated the wave of pent-up demand for property that was forthcoming.

    At the moment, although we don’t have a crystal ball, the UK is in a comfortable economic position and we’re able to be pretty confident with the figures we put out. But with the Omicron variant at the moment it’s a ‘never say never’ situation; this is why we reassess on a monthly basis.

  • What impact will rising interest rates have?

    Vanessa: Low rates have been seen for mortgages for a while now. The increase in the Bank of England Base Rate might not have a great deal of impact on the property market in the short term. However, in the medium-term the cost of living is rising, so we may see some influence from an economic standpoint.

  • All things considered, how could individuals approach buying a home in 2022?

    Vanessa: My advice is to remember that what you’re buying needs to feel like somewhere you want to live. Don’t forget that it’s a home first, investment second.

    Camilla: If you’re looking to buy a property this year, don’t wait until you start reading news articles about how buoyant the market is; the moment you start reading the positive headlines, you are too late. Nervousness around Omicron may help you because there will be less competition, and more opportunities. For any opportunistic buyer, Q1 2022 is the time to strike.

    I would also suggest buyers consider things like a property’s EPC (energy performance certificate) rating. New legislation now means that all rental properties must be rated level ‘C’ or higher, so be mindful of that with any potential purchase.

    Lastly, whether you’re seeking a home or an investment, it’s always worthwhile taking independent advice, if you can.

Disclaimer: Sources, statistics and comments in this summary article have been taken from the recording 'property market outlook 2022'. Futher information on UK property taxes can be found here. The recording took place in December 2021.

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