Leading agent signals the end for double digit house price growth

Knight Frank has issued a stark warning that house price growth is set to slow.

House price indices from lenders such as Nationwide and Halifax have registered double-digit growth in property values in recent weeks.

But Tom Bill, head of UK residential research at Knight Frank, warns that while the stock shortage has kept price growth strong, the cost of living crisis will set to bite in the coming months.

He says: “The UK property market has defied gravity over the course of the pandemic. 

“Tight supply, low-interest rates, accumulated household wealth and a desire for more space and greenery have conspired to produce double-digit house price growth over the last year.

“We believe that 2022 is when this begins to unwind, and growth returns to single digits.”

Bill says several factors will act as a drag on the previously rampant house price growth.

Sales

He says: “First, mortgage rates will continue to rise alongside interest rates. 

“The Ukraine conflict may slow the pace of this normalisation, but the Bank of England will be under pressure to respond to inflationary pressures in the short-term and the UK’s economic recovery in the longer term.

“Crucially, we believe supply will continue to increase as the distorting effects of the pandemic fade. The supply shortage has been the single biggest cause of strong house price growth and early signs this spring suggest stock levels are building.

“Meanwhile, the ‘race for space’ will calm down without disappearing altogether.

"For many people, the post-Covid work-life balance is far from set in stone and demand will still be fuelled by a desire to improve living arrangements after successive lockdowns, in many cases enabled by the accumulation of household wealth and the fact many sectors of the economy have performed well during the pandemic.”

Knight Frank is predicting that UK prices will grow by 5% this year and just 1% in 2023 before bouncing back to 2% in 2024.

In prime central London (PCL), it predicts price growth of 3.5% this year but an improved 6% in 2023 and 5% in 2024, helped by the return of international buyers.

Bill says: “In the five years to 2026, this will produce 13.6% cumulative growth in the UK. 

“We believe some regions will outperform as they benefit from the UK’s changing economy after Covid. The Midlands, for example, we believe will benefit from the growth of the logistics sector and life sciences.”

Rents