Knight Frank is predicting annual growth of 5% in 2022, with just a 1% growth the year after
UK house price growth will slow this year, and is likely to produce just single digit growth according to the latest forecasts from Knight Frank.
The estate and lettings agency is predicting annual growth of 5% in 2022, with just a 1% growth the year after. It said higher mortgage rates, the cost of living squeeze, and increased supply will all act as a drag on runaway house prices.
But while it is forecasting a general market cool down, Knight Frank predicts that prices in prime central London will buck this trend, and should pick up as global travel resumes after the Covid pandemic.
Knight Frank is also more upbeat about prospects in the buy-to-let sector, with UK rents forecast to increase by 4% in 2022, building on the strong performance in the second half of last year.
Longer-term, it predicts that supply constraints, strong tenant demand and robust earnings growth in will support an increase of 17.1% in rental values over the next five years.
Looking at the residential market Knight Frank head of UK residential research Tom Bill says: The UK property market has defied gravity over the course of the pandemic. Tight supply, low interest rates, accumulated household wealth and a desire for more space and greenery have conspired to produce double-digit house price growth over the last year.
We believe that 2022 is when this begins to unwind, and growth returns to single digits, he says.
He says several factors will contribute to slower growth in house prices. First, mortgage rates will continue to rise alongside interest rates. The Ukraine conflict may slow the pace of this normalisation, but the Bank of England will be under pressure to respond to inflationary pressures in the short-term and the UK’s economic recovery in the longer-term.
Crucially, we believe supply will continue to increase as the distortive effects of the pandemic fade. The supply shortage has been the single biggest cause of strong house price growth and early signs this spring suggest stock levels are building, he says.
Meanwhile, the ‘race for space’ will calm down without disappearing altogether. However, we believe the cost-of-living squeeze will bite harder in 2023, and we expect house prices to climb by 1% before starting to slowly pick up again, he says.
Bill says that in the five years to 2026, Knight Franks is predicting that this will produce 13.6% cumulative growth in the UK. It says there will be regional differences, with the Midlands for example, expected to outperform as it benefits from the UK’s changing economy after Covid, and the growth of the logistics sector and life sciences.