As working from home became the norm in 2020, it caused many buyers to rethink their need for more space, whether that was a study, a garden, or more room to roam in general. We also saw an increased trend towards suburban living in the first half of 2021. Over the second part of the year, this demand expanded to all types of properties, including flats in central London. The freedom gained from a relaxation of COVID restrictions was one driving force behind this return, but it could equally be put down to confidence in the market and low mortgage rates. I expect this to continue unabated into next year, regardless of incentives like the Stamp Duty Holiday.
Interest rates on the up
As of 3 February, the Bank of England has raised interest rates to 0.5% to combat soaring inflation. Fortunately, this hike isn't as high as we’ve seen in the past and it will likely impact demand outside of London, with sales within the capital typically less affected.
Chronic lack of supply vs demand
More demand than supply is always an indicator of whether there will be strong growth in the market, this shows no sign of changing in London. We are seeing 20 buyers in play for one property and even though the race for space is now tailing off, there can still be up to 30 buyers per property for homes in leafier locations.
To put this demand into perspective, supply is still 40% below pre-pandemic levels and this should continue to fuel growth in the London property market for 2022.
Bank of England decisions
As the economy continues to bounce back from the economic effects of COVID, we will likely see the affordability criteria for lending relax over time. If it happens, the positive impact on the market would be huge and would see a rise in the number of first-time buyers.
An end to the cladding crisis
Following the Grenfell tragedy, other homes across the UK have been identified to have dangerous cladding. This situation has been compounded for these homeowners by being unable to sell up or afford the renovations to replace the hazardous materials. I predict that the Government will need to ramp up its help for this group of homeowners next year – and that the resulting mass-selling up of this contingent will only add to the growth of the market.
Changing COVID restrictions
The pandemic is back at the forefront of people’s minds in the form of Omicron and a return to tighter restrictions seems inevitable. I expect that these won’t have a huge impact on the property sector if any form of lockdown spills into 2022. This is mainly due to agents and buyers alike being used to interacting through virtual viewings.
The great return to the capital is clear through the persistent growth in the sector. As vaccines came and restrictions went, London was once again seen as the best place to be to get on and enjoy life as normal. Despite the resurgence of COVID, this should continue to buoy the industry next year, particularly as more and more international residents decide to return to the capital.
Energy efficiency efforts
A slew of environmental disasters and the scale of COP26 has put sustainability firmly in the world’s mind and so it is expected that the Government will raise the minimum Energy Performance Certificate (EPC) ratings, requiring all new rental tenancies to have a minimum rating of C and above by 1 April 2025, while existing tenancies will have to meet this target by 2028.
While that is a good thing for the environment and homeowners in the future, it will create a huge degree of upheaval for current landlords, who are already feeling the pinch to their profits from existing legislations. Approximately 60% of properties would need updating if this were to come into effect – the cost would likely see landlords selling up, which would cut supply, increase demand and increase rental prices.
Strong foundations are already in place to see an already resurgent London property market reach new heights next year, even factoring in the spectre of COVID. Despite the confident position, any prediction of this growth truly hitting its stride may depend on government decisions. With EPC ratings potentially having a negative impact, while interventions on lending criteria and the cladding crisis could compound growth for 2022 and beyond.
*Sophie Durkin is the Regional Director of Portico