What’s driving house price growth?
Over the last 24 months or so, the UK Government has brought in a number of initiatives to help curb the devastating effects of the pandemic and support the economy.
For the housing market, the most significant has been the Chancellor’s introduction of the Stamp Duty Land Tax (SDLT) holiday – whereby buyers completing a property purchase for less than £500,000 on or before July 1, 2021, would no longer need to pay for the cost of stamp duty. Those buying homes with a value above the threshold, on the other hand, would only pay tax on amounts above £500,0003.
These measures, combined with pent-up demand created by periods of lockdown, would have undoubtedly helped to drive activity during 2020 and into 2021. We also saw a significant number of transactions driven by the ‘race for space’, as home-working and long periods at home in general prompted buyers to look for bigger properties with more space. We expect these kinds of pandemic-driven shifts in housing preferences to continue well into 2022.
The impact of spending habits
In addition to government support, changed spending habits during the pandemic has also allowed prospective home buyers to save more money for larger deposits. It’s thanks to these factors that the market continues to look robust, but there are clearly still challenges ahead.
The Bank of England has already acted to combat rising inflation with one interest rate rise, and we expect more to come in 2022 (albeit remaining at historically low levels). This, paired with further financial strains on households – such as higher energy prices – is also likely to reduce house price growth over the coming months.
With all of this in mind, here at Lloyds Banking Group, we expect house prices to maintain their current strong levels over the next year, but growth to be much flatter in 2022, at around 1%.