With supply rebuilding more gradually than anticipated house price growth is expected to end the year in high – rather than mid-single digits, according to Knight Frank.
Housing market statistics continue to sit uncomfortably alongside other UK economic indicators. With inflation at a 40-year high and interest rates at their steepest in 13 years, annual house price growth rose to 12.4% in April, data from the ONS showed last week.
And that wasn’t an anomaly, with the Nationwide and Halifax both reporting double-digit growth in May.
As such Knight Frank has revised up its UK house price forecast to 8% from 5% in 2022, following its latest quarterly review.
Knight Frank said it still believes annual growth will return to single digits by the end of the year as supply builds and demand is put under pressure by rising mortgage rates and spiking inflation.
Low supply has been the key story of the pandemic for the UK housing market. It has largely failed to keep pace with demand, particularly during the frenetic conditions of the stamp duty holiday, and put upwards pressure on prices.
Prospective sellers were often unable to find purchase options of their own, causing a vicious circle effect.
However, listings have picked up in recent weeks following the Bank of England’s decision to raise the base rate to 1.25% and issue a series of stark economic warnings. More sellers have come forward in the belief house prices may be peaking.
That said, not all commentators agree with the Bank’s economic assessments, citing the lowest rate of unemployment in nearly 50 years.
Knight Frank has also revised up its expectation for prime outer London (POL) to 5% from 4% and its prime country forecast to 7% from 5.5% in 2022.
Furthermore, it has increased its forecast for prime central London (PCL) to 4% from 3.5% as the market continues to be buoyed by strong domestic demand as international buyers make their gradual return to the capital.
“House price growth is peaking as supply rebuilds and mortgage rates normalise,” said Tom Bill, head of UK residential research at Knight Frank. “But one lesson from the pandemic is that nothing reverts to normal overnight, which is particularly true in a relatively slow-moving market like residential property. We therefore expect a more gradual return to earth for prices.”
“The distortive effect of low supply has also kept rental value growth high.
“A sharper slowdown in the sales market would have boosted supply and increased downwards pressure on rents as owners let out property that failed to sell for the asking price.
“We expect stock levels to be particularly squeezed over the summer as high demand from corporate tenants and students exceeds available supply.
“We have revised up our rental forecasts for PCL and POL in 2022. We now expect rental value growth of 11% in PCL and 9% in POL, up from 8% and 5%, respectively.
“All other forecasts remain unchanged and will be reviewed in Q3.”
