Will house prices and demand continue to climb in 2022?

2021 saw a considerable increase in demand for property, along with prices. What's in store for the UK housing market in 2022?

Annual house price growth increased to 11.2% in January, from 10.4% in December, according to the latest Nationwide House Price Index.

Across the UK the average house price now stands at £255,556, compared with £254,822 at the end of 2021.

Nationwide also reported that the total number of property transactions last year was the highest since 2007 and around 25% higher than in 2019, before the pandemic.

Four factors in particular have contributed to the rise in transaction volumes and prices, says bridging finance provider Market Financial Solutions (MFS). They are:

1. Pent-up demand that formed during the multiple lockdowns and social distancing restrictions due to the pandemic. These periods prevented or significantly obstructed people from purchasing properties, resulting in a backlog of people keen to buy. Once the restrictions were lifted, the market burst back into life.
2. The stamp duty holiday between July 2020 and October 2021 offered property buyers tax savings of up to £15,000 during the first year of the initiative. This further fuelled demand, driving prices upwards.
3. Record-low interest rates of 0.1% between March 2020 and December 2021 meant that the cost of borrowing was relatively low.
4. The pandemic has changed what many people look for in a home, leading some owners to sell their existing property and buy a larger or more rural home. There has been intense competition for certain properties, such as houses with gardens and spare rooms for home offices.

So far there is little sign of a slowdown in demand, with a survey by MFS revealing that almost one in five UK adults (18%) -- over 9 million people -- intend to buy a residential property in 2022, including 34% of those aged 18-34.

Among renters, 14% plan to buy their first home. Among existing homeowners, 14% plan to sell up and move home in 2022, while 6% hope to purchase an additional investment property.

Overall, 43% of those planning to buy a property this year will look in a different area to where they currently live. This trend is driven by the rise of remote working, which has encouraged buyers to explore further afield.

Half (50%) of prospective buyers surveyed by MFS said they want a property that has more space. However, two thirds (66%) of UK adults who are planning to buy a property this year said they are worried that inflation and rising house prices will potentially push their desired property out of their reach.

"Forward planning will be crucial for anyone looking to buy a new home or invest in property," said Paresh Raja, chief executive of MFS. "Having their finances in order and, if required, a lender in place will ensure they can act with speed and confidence, which will improve their chances of being successful in a competitive market."

It's likely that the housing market will slow down this year, according to Nationwide's chief economist, Robert Gardner.

"House price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, housing affordability has become less favourable," Gardner explained.

"Reduced affordability is likely to exert a dampening impact on market activity and house price growth, especially since household finances are also coming under pressure from sharp increases in the cost of living," he added.