The outlook for the housing market in 2022 and what it means for property investors

By Jo Bentham14th December 2021

The emergence of the Coronavirus-induced housing boom in the latter half of 2020 saw demand for homes soar and prices rise at an exponential rate. This continued – and even accelerated – in 2021, with the last 12 months on track to be the housing market’s busiest in over a decade.

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It’s estimated that 1.5 million homes will be sold in 2021, the most since pre-financial crisis in 2007. Furthermore, the latest Halifax House Price Index reports that house prices were 8.2% higher in November 2021 compared to November of 2020, with the average price of a house in the UK reaching a new record-high of £272,992. 

In addition, the latest Zoopla House Price Index found that buyer demand was 19% higher in mid-October vs the five-year average, spurred by the pandemic-led “race for space”.

This evidenced positive performance of the market amidst the Covid-19 pandemic has been welcome news for property investors who may have seen other assets in their investment portfolio falter – from extreme fluctuations witnessed in the equities market, to all-time low cash interest rates. 

The importance of a diversified portfolio has without a doubt been highlighted over the course of the pandemic, and it has also served to reiterate one of the well-known benefits of property investment – consistent demand. 

Demand for housing in the UK was far outstripping supply even pre-Coronavirus, but the surge in prospective home-movers looking to size-up, relocate to the countryside and make the most of Government incentives such as the SDLT cuts widened the gap further. 

In turn, the already vital need for housing delivery to pick-up pace was exacerbated, with the importance of products such as the property-backed Innovative Finance ISA (IFISA) – which supports small and medium-sized housebuilders with the provision of much-needed housing – becoming more apparent than ever. 

And as we head into 2022, the outlook for the market remains positive, particularly for experienced investors who are able to utilise the likes of property bonds and the IFISA to help serve the heightened appetite for homes in the UK whilst targeting returns often in excess of 7%.  

 

The outlook heading into 2022

After the end of the SDLT cuts in September 2021 – which some experts speculated would also spell the end of the Coronavirus-induced housing boom – Zoopla indicated there was “no sign of any cliff-edge in demand [...] the impact of the pandemic has further to run, albeit at a less frantic pace”. 

This also looks true as we head into 2022. Whilst it’s expected there will be less urgency amongst buyers as there is no longer the need to rush purchases over the line in order to benefit from the SDLT holiday, the market is likely to remain extremely active.

A report from The Resolution Foundation found the assertion that the SDLT cuts were the core driver of rising house prices “somewhat wide off the mark”, and that changing preferences and “enforced savings” were instead instrumental in soaring demand. 

And as more and more workplaces embrace home working, Savills predict this will continue to “drive upsizer demand”, with their five-year house price forecast estimating average growth in the UK will be a strong 3.5% in 2022. 

Moreover, Savills forecast price growth will be “fastest in the North of England and slowest in London”, with house prices in the North East in particular growing by 4% compared to 2% in London. 

But it’s the aforementioned undersupplied demand that really provides opportunities for experienced investors to capitalise on the resilient market.

Zoopla’s House Price Index reported that the stock of homes for sale is 42% below the five-year average, and Savills state that “we won’t get back to 2019 levels of housing delivery until 2026”. 

It’s also worth noting that even in 2019, we weren’t building near enough homes to keep pace with the existing need for suitable houses and new demand.

This is where the role of the property-backed IFISA becomes crucial. With the 2017 white paper Fixing Our Broken Housing Market finding that a significant problem facing the market is “a construction industry that is too reliant on a small number of big players”, it’s clear more must be done to encourage SME housebuilders to re-establish themselves in the market. 

Experienced investors have an important part to play in this. Not only does a property-backed IFISA offer tax-free, inflation-beating potential returns, but they aid in reversing the decline of small and medium-sized housebuilders in the aftermath of the global financial crisis.

 

Investing into a property-backed IFISA

With the outlook for the housing market looking positive as we enter 2022, it’s clear that considering a property-backed IFISA as an addition to a diversified investment portfolio is an important consideration for experienced investors. 

House prices are forecasted to remain strong – particularly in the North of England – and increased demand in response to changing housing requirements is expected to continue for some time.

Meanwhile, the gap between supply and demand is widening, and experienced investors have a crucial role to play in supporting SME housebuilders to ramp-up much-needed housing delivery.