We entered 2021 with high hopes for a far better year than 2020. After yet another turbulent 12 months, however, we greeted 2022 with cautious optimism, especially within the housing market, which has experienced unprecedented activity due to the pandemic.

A relatively slow January with a return to pre-Covid transaction levels was fleeting. February saw the biggest-ever month-on-month price jump as the final restrictions ended and workers returned to the office, driving buying and selling across the country.

An appetite for city living, especially in London, is returning

While we are still not out of the woods, the tiptoe back to normality is gaining pace, and trends are already appearing that will shape this quarter in the housing market, if not the entire year.

Cost-of-living crisis

Despite signs that the UK is moving into a ‘new normal’, the hangover from Covid lingers in the form of the cost-of-living crisis, which is outstripping wage growth at breakneck speed, meaning affordability is at an historic low.

The conflict between Russia and Ukraine is expected to exacerbate this with a rise in petrol, gas and food prices, and a possible base rate increase from the Bank of England in response. This will affect particularly first-time buyers (FTBs), who will be forced to find bigger deposits and pass increasingly strict affordability assessments from lenders.

The easing of travel restrictions has allowed for the release of pent-up international demand

Although the number of people who became FTBs in 2021 was 409,370 — up 35% on 2020 — according to the Halifax, it seems unlikely that 2022 will see the same trend unless help is given to those looking to get on the ladder, as the goalposts shift once again in the form of rising costs and inflation.

Fortunately, a host of innovative lenders and intermediaries that specifically service FTBs have appeared, such as Generation Home and Home Me, but it is still to be seen how the government plans to replace the Help to Buy scheme after 2023.

The exacerbated problem with supply and demand may see build-to-rent take off in the UK

Housebuilders Barratt, Persimmon and Taylor Wimpey have all reported strong activity on both sales and development fronts, and the trend for healthy forward sales shows no sign of waning. The continued success for developers appears due to the fact that house-price inflation costs have fully offset increased costs for materials and labour, and due to the ongoing imbalance between supply and demand.

A driver of new-build activity is the dramatic increase in tenant demand, with Zoopla already finding 2022 lettings applicant demand 58% higher than in 2021. Conversely, the Association of Residential Letting Agents reported in its Private Rented Sector Report (December 2021) that the availability of rental stock in London had fallen by 71% in 12 months.

Build-to-rent

This exacerbated problem with supply and demand may see build-to-rent take off in the UK, with a 23% increase in the number of build-to-rent properties completed in 2020 against the previous year.

National House Building Council data shows that, in 2021, registrations for new apartments dropped 15% year on year — with those in London falling significantly further, by 27%. On the flipside, detached new-build home registrations reached the highest level since 2003, indicative of people wanting larger homes and gardens to facilitate a remote-working lifestyle.

Many FTBs have been spurred into action by rising house and cost-of-living prices

Reticence to invest in apartments was driven by a perceived lack of indoor and outdoor space, movement away from city centres, and ongoing issues with cladding and building safety. But early figures from this year suggest this is about to change.

Many FTBs have been spurred into action by rising house and cost-of-living prices, which do not seem likely to abate anytime soon. Meanwhile, an appetite for city living, especially in London, is returning after falling out of favour due to the ‘race for space’ during the epicentre of the pandemic.

February saw the biggest-ever monthly price jump

The easing of travel restrictions has also allowed for the release of pent-up international demand from those wanting to invest, or live, in London properties.

Mobeen Akram is national new homes account director at Mortgage Advice Bureau