Interest rates to hit rock bottom
Mortgage lenders are now cutting rates as quickly as they raised them when the pandemic hit. Borrowers with equity are enjoying record low rates. The cost of higher-loan-to-value deals, needed by first-time buyers, is also falling. We forecast that, sometime in 2022, these interest rates will return to their pre-Covid level. They may become even cheaper.
Bounce back in first-time buyer numbers
The mix of more attractively priced finance, the final year of Help to Buy and a second wave of lockdown-induced demand is set to boost first-time buyer activity. In a normal year, first-time buyer purchases account for 25% of all sales. In 2022, this proportion will increase.
The private rented sector shrinks again
Landlords investing as individuals or as companies have benefited from falling mortgage rates. But rapid house price growth will still squeeze yields. As a result, landlord purchases are likely to remain muted in 2022, below the level needed to replace landlords selling up. There could be 300,000 fewer rental homes in England than in 2016.
Flat sales return to above pre-covid levelsÂ
In the pre-pandemic era, flats accounted for 18-20% of sales. But since June 2020, flats have made up closer to 14%-15%. However, with first-time buyer numbers set to rise, demand is poised to surge in 2021. Lenders are likely to relax some of their criteria which had been excluding flats. There may also be a gradual resolution of the cladding issues that have plagued some bigger blocks.
The start of a cash buyer recovery
A record 54% of homeowners own their home without a mortgage. But the number of cash buyers has fallen since 2014. In 2022, we think that more mortgage-free retired households living in large family houses will start making plans to relocate, having delayed a move during the pandemic. This will swell the ranks of cash buyers.
City-country chasm to carry on closing
The pandemic served as the catalyst for the closing of the gap between city and country prices. We expect this to continue in 2022 – and until the end of the house price cycle in 2024. City prices remain 75% more expensive than those in the country, against 42% in 2007. This means that the budgets of townies shopping for houses in rural locations will go less far than in 2019.
