What is going to happen to UK house prices?

12 min Read Published: 04 Jan 2022

What is going to happen to UK house pricesIf you are planning to buy or sell a house, you will be interested to know what is likely to happen to house prices and whether now is a good time to move. Whether you already own a property or are a first-time buyer, an adjustment in house prices can be beneficial. A drop in price in the area you wish to buy in can save you money, whereas a rise in your current property's value means you can secure a good price and have more capital to invest in your next purchase.

House prices are determined by a number of factors, including:

  • The overall health of the economy: The unemployment rate and wage growth both play a part in consumer confidence, which impacts how confident people are to move and how much they are willing to pay.
  • Interest rates: The Bank of England sets the base interest rate level and, if it is relatively low, people can afford to spend more on a property as the cost of borrowing is lower. This tends to push house prices up.
  • Supply and demand: Local house prices will be determined by how desirable a particular location is and how many similar properties are available. If, for example, a new housing development is completed, this can reduce the value of properties nearby as there is greater competition for buyers. Conversely, some properties will always command a premium because they are in a sought-after area where the housing stock is limited.

What has been happening to house prices?

There are a number of respected sources of data relating to house prices, including monthly indices that provide information on house price changes over the previous month and over the preceding 12 months. Below is a summary of each published index.

The UK House Price Index

The UK House Price Index is the most accurate of the various house price indices as it is calculated based on completed sales, both for cash sales and those with a mortgage. The wide-ranging data is sourced from HM Land Registry and other government sources. However, while it gives a very clear picture of what is going on in the housing market, there is a lag in the data being published. The latest data currently available relates to October 2021. It showed the average house price in the UK has risen fallen by 1.1% compared with the previous month, with year-on-year growth of 10.2%.

UK House Price Index October 2021 September 2021
 

Monthly change

-1.1% 2.5%
 

Annual change

10.2% 11.8%
 

Average house price

£268,349 £269,945

Nationwide House Price Index

The Nationwide House Price Index is calculated based on its own data of mortgage approvals. It showed a pick up in house prices, with monthly growth of 1% nudging overall annual growth back into double-digits for November and December. This is still a significant softening compared with growth of 2.1% in August 2021, which was the second-largest monthly growth in 15 years. Commentators are putting this slowdown down to the end of the stamp duty holiday at the end of September taking some of the heat out of the market.

Nationwide House Price Index December 2021 November 2021
 

Monthly change in house prices 

1% 0.9%
 

Annual change

10.4% 10%
 

Average price

£254,822 £252,687

Halifax House Price Index

The Halifax House Price Index is calculated from its own database of approximately 300,000 mortgage approvals. Recent data shows house price inflation has started to slow over recent months, with a lot of the heat going out of the market since the peak earlier in the year. That said, prices rose sharply in September and continued to rise in October and November.

Halifax House Price Index November 2021 October 2021
 

Monthly change in house prices 

1% 0.9%
 

Annual change

8.2% 8.1%
 

Average price

£272,992 £270,027

 

Rightmove House Price Index

Unlike the other indices that are based on mortgage approval data or completed sales, the Rightmove House Price Index looks at the average asking prices for properties listed on the Rightmove portal. This is a good reflection of sellers' confidence, but doesn't clearly demonstrate how many of those properties end up going under offer at a much lower price or, in fact, don't end up selling at all.

The most recent figures demonstrate a weakening in asking prices over the final two months of 2021. Whether this is because of seasonality in the run up to Christmas or part of a wider trend that will continue in 2022 remains to be seen.

Rightmove House Price Index December 2021 November 2021
 

Monthly change

-0.7% -0.6%
 

Annual change

6.3% 6.3%
 

Average asking price

£340,167 £342,401

What is driving the change in house prices?

The housing market has been tumultuous over the past 2 years, with the pandemic having a direct impact on house prices. Initially there was a slump as the country entered into lockdown for the first time in March 2020 before a massive resurgence from June 2020, when society began opening up again. A key driver was the introduction of a stamp duty holiday on 8 July 2020, which offered buyers a saving of up to £15,000 on their tax bill when purchasing a house. This acted as a stimulus, ironically driving house prices up by an average of £15,409 between June and November 2020, according to figures from the Halifax, in effect wiping out the stamp duty saving.

The main stamp duty holiday ended at the end of June 2021, with a tapering until the end of September, during which time buyers could save a maximum £2,500 off their bill. There was a corresponding uptick in house prices in the run up to the deadlines for the end of each of these phases and, overall, there was double-digit annual growth across 2021. This was bolstered by historically low mortgage rates, as well as the reintroduction of higher loan-to-value deals.

It is unclear what will happen to house prices in 2022, with most commentators anticipating a return to more normal conditions. The increase in the Bank of England base rate is making borrowing more expensive, which may take some of the heat out of the market, while the high level of activity over the past two years mean that many people who were considering moving have now done so.

Is now a good time to move house?

On one hand, the current availability of competitive mortgage deals which, although not at their lowest levels, still make borrowing relatively cheap, could make it a good time to move house. With the Bank of England opting to increase the base rate in December and a growing likelihood it will action further rises in 2022, borrowing could become more expensive, limiting the amount you can secure for your house purchase.

On the other hand, with house prices at elevated levels, we could see them starting to trend downwards over the coming months, which, if you are a first-time buyer or moving to a new area, could save you money if you decide to wait. If, however, you are a mover and have to sell your current property, it may pay to make the most of the tail-end of this recent house price boom.

Anecdotally, estate agents are reporting there are still significant numbers of people looking to move, with demand outstripping supply. This means buyers are having to remain quick-thinking and decisive when house-hunting.

How do I know what my property is worth?

While it is useful to consider the broader market trends for the UK, it's also important to work out what is happening in your local area if you are planning to buy or sell a property. There can be a great deal of variation in the price of a house on one street compared to the same style of house on an adjacent street, so it pays to do your homework. Good sources of information include:

  • Property websites: Sites such as Rightmove and Zoopla have features that give you an estimate of what your house is worth based on its sales history and what other local properties have sold for. These tools are not completely accurate but give you a good starting point to work out how much you could reasonably expect to sell your house for
  • Land registry data: It is possible to access the sold prices for all the properties in your local area, sorted by how long ago the property sold. This gives a good indication of what properties are actually selling for, compared with the asking prices that they are being marketed at.
  • Estate agent: A good local agency with properties on its books similar to the one you are trying to sell will be able to give you the best idea of what you are likely to be able to sell your property for. It is a good rule of thumb to get valuations from a few different agents as there could be some variation in the valuations they provide. Read our article: How to find the best & cheapest local estate agent in seconds.