Hot Housing Market to Normalise Next Year: Zoopla

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UK house prices have reached an all time high according to a regular monthly assessment of the market, although 2022 should see a buoyant market rationalise amidst increasing mortgage costs.

Zoopla's monthly House Price Index revealed strong buyer demand and lower housing stock volumes have boosted average house prices by £16K in the last 12 months.

This gives a 7.1% rise in average house prices, down from 7.6% in August.

Zoopla says buyer demand is currently seen to be easing in line with seasonal trends, but they anticipate it will build sharply again after Christmas ahead of a moderation.

Rising household equity, coupled with movers looking for additional space, will underpin activity – delivering new supply, and demand - into 2022 said Zoopla.

Nationwide - who conduct the UK's leading house price measurement - said annual house price growth increased slightly in November to 10.0%, with prices going up 0.9% month-on-month.

"Underlying activity appears to be holding up well. The number of mortgages approved for house purchases in October was still running above the 2019 monthly average. Early indications also suggest that labour market conditions remain robust, despite the furlough scheme finishing at the end of September. If this is maintained, housing market conditions may remain fairly buoyant in the coming months," said Robert Gardner, Nationwide's Chief Economist.

But Zoopla says the market should normalise in 2022 following the hefty gains in prices seen over recent months.

"The speed at which the market is moving will start to normalise next year," said Zoopla.

A significant potential headwind to further house price gains comes in the form of higher mortgage interest rates as credit markets anticipate a higher Bank Rate at the Bank of England over coming months.

"New mortgage rates already have jumped to reflect expectations that the MPC would hike Bank Rate," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.

The Bank of England last week hiked interest rates by 10 basis points to 0.25% and economists expect further rate hikes will follow in 2022.

Whether the next rate comes in February or May is up for debate, but money markets show investors are anticipating Bank Rate to go to 1.0% by the time 2022 is done and this will be reflected in mortgage levels.

20% of the stock of existing mortgages are on variable rates, making them the most 'at risk' category.

"Most households which refinance their fixed-rate mortgage over the coming months won’t end up paying any more in interest, given that most of them obtained their mortgage five years ago, when rates were higher," says Tombs.

Pantheon Macroeconomics say they forecast the Bank of England will raise interest rates to 0.50% in May, rather than in February as markets presently expect.