01 Aug 2022

Guest post by Simon Zutshi


It’s not only temperatures soaring in July, as house prices continue to increase despite economic and political uncertainty. As inflation and interest rates continue to rise, CrowdProperty reviews the latest market commentary and what this will mean for the sector going forward. 

The latest House Price Index from Halifax reports that prices increased by 1.8% last month, the biggest monthly rise since early 2007, with a typical property now costing £294,845. This is the twelfth consecutive monthly rise in house prices, resulting in an annual growth rate of 13% which is the highest since late 2004.

The supply-demand imbalance continues to be the reason why house prices are increasing, with demand remaining strong while the stock of available properties remains extremely low. As such, Rightmove has revised its 2022 price forecast to 7% annual growth expected by the end of the year (up from 5%) as there are not enough homes coming to market to correct the balance between supply and demand. Whilst property prices appear to have been largely insulated from the cost of living squeeze thus far (confidence so far supported by household balance sheets from £180bn of unplanned pandemic savings and 50-year low unemployment), Russell Galley, Managing Director at Halifax, notes that the housing market will not remain immune from the challenging economic environment: “Increased pressure on household budgets from inflation and higher interest rates should weigh more heavily on the housing market, given the impact this has on affordability… So while it may come later than previously anticipated, a slowing of house price growth should still be expected in the months ahead.”

Don’t, however, get disproportionately spooked by record nominal value highs on certain front pages… in real terms (i.e. inflation adjusted), the current market is on average 9.8% below 2007 peak prices and the same as 2004 levels (beware of averages caveat). 


In terms of regional impact, Northern Ireland continues to see the highest annual house price inflation with an increase of 15.2% meaning an average property price of £187,833. Wales also reports strong annual growth rates, up by 14.3%, closely followed by the South West of England at 14.2%. The average cost of a home in Scotland has now reached £201,549, breaking through £200,000 for the first time in history, as the region experiences annual house price inflation of 9.9%. Whilst London remains the most expensive place in the UK to purchase a home, with an average property price of £547,031, house price inflation in the area continues to lag behind the rest of the country at 7.1%.

According to HMRC’s monthly property transactions data, UK home sales increased in May 2022 with seasonally adjusted residential transactions up by 1.3% on April and quarterly transactions up 4.3% compared with the previous three months – however, year-on-year figures showed a 5.1% decrease in seasonally adjusted transactions compared to May 2021. The latest TwentyCi Property & Homemover Report stated that volumes were on track for 1.2 million transactions this year based on 342,000 sales agreed in Q1 2022, an increase of c. 17% compared to Q1 2019 (considered the most valid indicator of the property market given the abnormal activity levels as a consequence of the pandemic). Despite the number of available homes for sale being 40% down on 2019 levels, Rightmove reported a 13% increase in the number of sellers this month. Tim Bannister, Director of Property Science at Rightmove, sees this as a win-win for the market as “sellers will likely achieve good prices for their homes [whilst] for those looking to buy, it means more choice and a slight easing in competition against other buyers while the market is still moving very quickly.”

Buyers are still showing a preference towards larger properties, with the average prices for detached houses rising by almost twice the rate of flats over the past year (+13.9% vs +7.6%). Rightmove predicts that the challenges presented by rising interest rates and the cost of living will cause would-be home-movers to reconsider what they can afford, as personal finances may become even more stretched in the coming months. With the energy price cap due to rise to just under £3,000 in October 2022 and climate change concerns growing (especially given the recent weather), energy efficiency has started to have a greater influence on home buying decisions – according to Zoopla, nearly 70% of new-build buyers say EPC ratings are an extremely or very important factor along with almost half of buyers of older homes agreeing that energy efficiency is important. More than 80% of new-builds have an energy efficiency rating of A or B, compared to just 3% of older homes, making them popular with both buyers and renters as they are less expensive to run. New-builds can offer up to 52% lower running costs over a year compared to a similar-sized older property, with the Home Builders Federation estimating that new-build home owners can save an average of £555 a year on energy bills.

This push towards greener housing is supported by new government regulations and standards such as The Future Homes and Building Standard, which ensures that new homes built from 2025 will produce 75-80% less carbon emissions than those delivered under current regulations, and the Heat and Buildings Strategy, which bans the installation of new gas boilers from 2035 and provides grants of up to £6,000 for heat pump installation. These initiatives follow on from the 2017 Clean Growth Strategy in which the government confirmed its ambition for as many homes as possible to achieve an EPC rating of C or above by 31 December 2025, impacting not only homeowners but requiring all landlords to ensure the buildings they let out to tenants also comply.

The impact for property developers is clear, with double or triple glazing, low energy lighting and dual flushes to reduce water usage being installed in many properties as standard along with loft and cavity wall insulation providing further energy efficiency. With petrol and diesel cars being banned by 2030, car charging points are now a legal requirement for all new-build homes with many developments also featuring bike storage. Other considerations include developing sites close to good public transport links for those who need to commute, including near small villages with local train stations as a result of the shift to increased working from home and the desire to live more rurally driven by the pandemic, as well as eco-friendly landscaping and planning with tree planting, re-wilding to encourage birds and wildlife to flourish, and even hedgehog highways to be found in rural developments.

According to research from Zoopla, the growing ‘green home movement’ also sees 74% of new home buyers claim that it is important that their home is built with minimal impact on the environment. Developers are increasingly employing Modern Methods of Construction, which see the offsite build of ready-made walls, floors and even entire rooms that are then transported to site, as a way of controlling waste production and limiting noise and dust pollution on site (the complex funding of which CrowdProperty pioneered with the market’s first dedicated Modern Methods of Construction Finance product).

Nationwide credits the current strength of the labour market as one factor which has impacted on the resilience of the housing market, where the unemployment rate remains close to 50-year lows with the number of job vacancies exceeding the number of unemployed people in recent months. The EY ITEM Club forecast from June noted that it is important not to overstate the impact of cost of living pressures on the housing market with Martin Beck, chief economic advisor to the EY ITEM Club, stating that “interest rates have become a much smaller risk factor to house prices than unemployment.”While almost all households are experiencing higher bills, the impact is most acute among those on lower incomes who are less likely to be homeowners or potential house buyers. Similarly, the uneven economic impact of the pandemic meant that related job losses and reduced incomes mostly affected those unlikely to buy or own houses. Those on higher incomes are less exposed to the rising price of essentials and hold the bulk of the £180bn of additional savings accumulated by UK households over the course of the pandemic.

The EY ITEM Club Summer Forecast sees the UK’s economic growth prospects downgraded once again, with UK GDP now set to grow by 3.7% this year (down from the 4.1% predicted in May’s Spring forecast and the 4.9% expected in February’s Winter forecast). With challenges spread across the economy, it is not only consumers that are feeling the pressure – business investment continues to underperform expectations with the business investment forecast for the year dropping from 10% in May to 6.4% in July. This is half of the 12.8% growth forecast back in February, with EY ITEM Club noting that business investment is unlikely to return to pre-pandemic levels on a sustained basis until 2025. Inflation is likely to peak at 11% in the autumn and consequently, there is an expectation that the MPC will raise interest rates to 2% by the end of 2022. Additionally, average earnings are forecast to rise 5.5%, although workers are still on course to see the biggest decline in real pay since the late 1970s. Despite this, EY ITEM Club expects consumer spending to rise 4.1% this year thanks to the aforementioned low unemployment rates, record high job vacancies and healthy household balance sheets. Hywel Ball, EY UK Chair, commented: “The outlook for the UK economy has become substantially gloomier than it was in the sprint, but – while there are significant risks – the forecast suggests there should still be enough supports to help the economy eke out growth over the rest of the year and avoid a recession.”

Despite the Consumer Prices Index (CPI) rising by 9.4% in the 12 months to June 2022, surpassing the expectations of many in the City as inflation races past rates last seen c. 40 years ago, Property Reporter notes that the majority of property professionals remain confident about business over the next year. In research conducted by Countrywide Surveying Services, 64% of respondents indicated that they are somewhat or very confident about their business prospects for the next 12 months despite gloomy economic forecasts. Of the c. 300 property professionals surveyed, 40% thought the buy-to-let/rental market would be most likely to be negatively impacted, with 27% predicting that the owner-occupier market would be adversely affected.

In light of this confidence, it is worth noting that the latest S&P Global / CIPS UK Construction PMI also reported that 36% of construction companies anticipate an increase in business activity – compared to 17% that expect a decline. This is despite the weakest rise in overall construction output recorded since September 2021, with the latest index reading for house building of 49.3 signalling an overall downturn in residential work for the first time since May 2020. Despite this, job creation has been recorded in each month since February 2021 with efforts to boost capacity in response to greater overall workloads contributing to another robust rise in staffing numbers during June.


Input buying increased at a much slower pace than in May, attributed to weaker new order growth and a smaller degree of safety stock building. 71% of those surveyed reported higher purchase prices in June, reflecting rising energy, fuel and transportation costs, with suppliers’ delivery times also lengthening. Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “Residential building levels fell for the first time since May 2020, and builders are getting an increasingly stark vision of the marketplace they are now operating in as overall activity growth also fell sharply. Returning from pandemic lockdowns has not been easy as builders now face greater affordability challenges not just for staff wages but for the energy-intensive materials needed to deliver the pipelines of construction work they currently have. With a downbeat economic environment, the sector will be fearful about what is round the corner during the rest of this year.”

CrowdProperty is a leading specialist property development finance lenderhaving funded over £500m worth of property projects to date. Apply  at www.crowdproperty.com/apply – our passionate team of property experts will share their insights and initial funding terms for your project within 24 hours, and go on to support the success of your project and help you grow your property business quicker.

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