U.K. Mortgage Lenders Expect Housing Market to Slow This Year

Reed Landberg

09 Jan 2022, 12:17 PM IST

(Bloomberg) -- Britain’s top mortgage lenders expect the housing market to slow in 2022 after the strongest growth in almost two decades strains affordability.

Halifax and Nationwide Building Society also said rising taxes, interest rates and utility bills will put the squeeze on consumers who bid up prices during the coronavirus pandemic.

The remarks indicate that the recession-defying strength in the property market may soon shudder to a halt, adding to the headwinds facing the economy this year. The Bank of England is weighing tightening monetary policy to combat inflation while the Treasury plans a major increase in taxes in April.

U.K. Mortgage Lenders Expect Housing Market to Slow This Year

“The prospect that interest rates may rise further this year to tackle rising inflation and the increasing pressures on household budgets suggest house price growth will slow considerably,” Russell Galley, managing director of Halifax, said Friday.

Halifax said house prices rose 9.8% to a record 276,091 pounds ($374,000) last year, the strongest pace since 2004, but predicts growth of around 1% this year. Nationwide estimated a 10.4% gain to 254,822 pounds, making last year the best since 2006.

Chancellor of the Exchequer Rishi Sunak fueled the market with a temporary break on taxes for house purchases. Consumers last year bid up the price of properties outside city centers, buying properties with room for a home office in anticipation that the five-day-a-week commute is a thing of the past.

“The stamp duty holiday encouraged many to bring forward their house purchase,” said Robert Gardner, Nationwide’s chief economist. “It appears likely that the housing market will slow next year.”

That tax break finished in September, and the government now is poised to collect more tax in the form of National Insurance Contributions to pay for health care starting in April. That’s also when higher utility bills will kick in.

Both lenders noted that property prices were surprisingly strong last year, and that momentum could continue. And while the BOE is the first among major central banks to raise borrowing costs since the pandemic, mortgage rates remain near a record low.

“The ingredients for any serious correction in property values are lacking,” said Martin Beck, chief economic adviser to the EY Item Club, a consultant that uses the U.K. Treasury’s forecasting model. He noted that “changes in housing preference driven by the pandemic -- the race for space -- will eventually fade.”