What we predicted

  1. The residential market was resilient over the pandemic period, and this will continue into 2022. However, activity would subside in the absence of the stamp duty holiday. This, combined with a rising cost of living and mortgage rates, would affect affordability. As a result, price growth would also moderate but remain positive at c4%
  2. We expected the investment market to return strongly, with interest widening from standard multi-family housing to include single-family housing, co-living and affordable housing. A highly competitive environment would continue to place downward pressure on yields across the sector, particularly in regional markets

What's happened so far

  • Since the start of 2022, the rise in the base rate and subsequent increase in mortgage rates have resulted in falling activity. Mortgage approvals for house purchases were 20% lower between January and April 2022 compared with the same period of 2021
  • However, mortgage rates are still low by historic standards, and falling demand has generally been offset by even lower supply. This has underpinned price growth which has been stronger than expected at 6.3% between January and June 2022
  • Investment into the residential sector has been extremely strong. A total of £1.8bn was transacted in H1 2022, 14% higher than the same period of 2021. This competitive environment has led to further yield contraction. In regional markets, prime yields were 3.85% in June 2022, down from 4.00% at the start of the year

What happens next

  • The recent residential survey from the RICS indicated a potential turning point in the market. In May, available supply outpaced demand for the first time since early 2019. This reflects the more challenging conditions for buyers and points to activity trending lower for the remainder of the year. In some areas, sales will be supported by the ending of the Help to Buy scheme. As per the government's plan this is being withdrawn in March 2023 but closes to new applications in October 2022
  • Any moderation in activity will take time to feed through to pricing and official data will continue to reflect price growth. As a result, we have revised up our forecast for UK house price growth to c8% in 2022
  • Investment into the residential sector will be strong for the remainder of the year driven by the keen competition from capital targeting this sector. Year-to-date deals, combined with the under-offer pipeline indicate that 2022 will exceed the record high of £4.4bn invested in 2021

Source: Bank of England, CBRE, Nationwide, RICS