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How has Covid-19 affected house prices? Predictions for 2022

Updated 26 January 2022

4min read

Kate Morgan
Staff Writer

With Covid-19 bringing so much disruption, savers and homeowners alike could be forgiven for feeling unsure about what the housing market holds. While the number of house purchases has been rising and falling, house prices have remained high throughout. 

The housing market is currently something of a mixed bag, so if you’re looking for some advice and guidance about the housing market and where it could go in 2022, this article will cover everything you need to know. 

house prices post covid-19

How did Covid affect house prices? 

When the UK was plunged into a lockdown in March 2020, the UK’s economic outlook was uncertain. Inevitably, this meant that many people put their house purchases on hold. As a consequence, house prices fell to their lowest point since 2011 and the total number of sales per month also dropped to a historic low.  

As restrictions were lifted, however, the UK housing market rebounded in dramatic style. Thanks to initiatives such as the Stamp Duty holiday, sales per month and house prices started rising quickly and reached highs above pre-Covid levels.

The time between a property being put on the market and being bought also fell dramatically, meaning that by almost all measures, until September 2021, the UK housing market was booming.  

What is happening to house prices now? 

In September 2021, the Stamp Duty holiday ended, and with it, there has been a noticeable slowdown in the housing market. The end of the Stamp Duty holiday coincided with the lapsing of a few different Covid-era protections designed to keep the housing market active. Consequently, the UK housing market is beginning to look a little different since September: both the number of sales completed per month and approved mortgage applications have fallen dramatically.

Although house prices are still high, the current statistics on house purchases appear to suggest that the housing market is slowing down.  

Despite this deceleration in the market, house prices remain buoyant. While the number of applications for housing is now starting to fall back to normal levels, house prices are staying high, leading many people to question why this is the case.  

Why are house prices rising so much? 

There are two main reasons why house prices in the UK are rising so much. First, to help the property market recover, the UK government announced a Stamp Duty holiday – effectively making house prices a little cheaper for lots of people. As this holiday was time-limited – ending in summer 2021 – many buyers rushed to take advantage of it.

The high level of demand is one reason why house prices have been rising since the pandemic first started. 

Beyond this, the UK is facing a housing shortage. Demand for housing, particularly affordable housing, is higher than the current supply.

As more people are competing for a limited supply of housing, prices are rising. Although there are plans to build more houses to meet this fast-growing demand, it’s not yet clear when enough housing will be built to start bringing prices back down again. 

What is clear though, is that with house purchases and mortgages coming down dramatically, house prices remaining high is being driven by supply problems. 

What about mortgages? 

As already mentioned, lots of people applied for mortgages before the end of the Stamp Duty holiday, so it’s not a great surprise to see the number of applications falling off a lot since September 2021.  

A source of greater concern for homeowners looking to remortgage is the potential change in interest rates in the near future.

The UK is currently experiencing a bout of extended inflation, meaning it was no surprise when the Bank of England decided to raise interest rates from 0.1% to 0.25% in mid December 2021. Higher interest rates can significantly increase the cost of mortgages, so this could be bad news for homeowners without fixed-rate rates who need to find a new deal.   

A change in interest rates, even a small one, can make planning for your mortgage that little bit more challenging. This means that getting the best possible advice and guidance on planning for your mortgage application is more important than ever.  

How will a rise in interest rates affect the housing market? 

With the Bank of England deciding to raise interest rates, it sends a signal that now is a good time to save money. This could potentially lead to a slowdown in the property market and possibly a levelling-off or fall in house prices. However there is likely to be a short-term surge in demand for mortgage applications ahead of further interest rate increases. 

Rising interest rates also mean that banks will charge slightly higher interest rates on mortgage and remortgage applications, making it more expensive to buy and move houses.

Now that interest rates have risen as it was expected, it is reasonable to predict that fewer people will move houses and more people will focus on saving.  

What will happen to house prices in 2022? 

There is a lot of uncertainty when it comes to the future of house prices in the UK. On the one hand, the shortage of affordable and available housing will play a major role in keeping house prices high. With so much competition for a limited supply of housing, prices are unlikely to level off.  

But at the same time, there is a lot of uncertainty when it comes to the economy. Whether it’s around future Covid variants, inflation or interest rate changes, uncertainty can put people off making big financial decisions, like moving house.

If fewer people are looking to buy, there is a chance that house prices could plateau in 2022.  

With ongoing uncertainty and constant changes in the housing market, expert advice is vital when arranging your finances for the future.

With the help of an IFA who knows your situation inside and out, you’ll be able to plan for whatever 2022 brings to the housing market. Unbiased has 27,000 independent financial professionals across the country. Let us match you to your perfect financial adviser. 

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.