Economic trends of 2022 – why property needs to be your priority
It is fair to say that the last two years have been an unusual time for the UK economy thanks to the impact of the Covid-19 pandemic. Following an initial slump thanks to lockdowns and other legal changes, the national economy is now in the full swing of recovery and has regained its health ahead of a strong future.
Throughout the upheaval, one sector of the economy not only remained as strong as ever, but it actually continued to grow – property. The continued growth of the UK property market, and its attractiveness as an investment class, is the economic headline for 2022, but it is not the only one. Read on to find out our top UK economic trends of 2022.
Residential property market leads the way
The residential property market was one of the few success stories of the pandemic, and all indications are that it is likely to keep growing over the course of 2022 and beyond. The underlying conditions that are causing UK house prices to increase are not going to change, meaning that there is no reason why demand will not continue going up.
It is estimated that we need approximately 340,000 new homes a year to meet demand, but even before the pandemic the number of new homes built was almost 100,000 fewer than that. New starts dropped by 25% over the last year according to Savills, and that will have an ongoing impact in the future. Furthermore, this situation is only expected to get worse in future.
The JLL Residential Forecast 2022-2026 report agrees, estimating that an average of just 188,000 new homes will begin construction in each year up to 2026 – only slightly over half of the number required. Due to this, JLL projects an average property value increase of 21.7% over the next five years, of which a minimum of 4.5% will be in 2022. We can therefore extrapolate that the average house price in the UK will reach almost £310,000 by 2026.
This means that a shortfall of available homes and rapidly growing house prices will be one of the major trends of 2022, just as they have been in previous years. According to RICS, “The lack of stock may not just inhibit activity going forward but could also contribute to further price growth; the headline RICS price balance is still showing a very strong reading and 12-month expectations are also elevated.”
For investors, there is nothing out there in 2022 that can compare to UK property investment when considering reliability, profitability and ease. Certain markets such as Manchester, Preston and a revitalised London will exceed national averages and represent areas which all investors should look at over the year, read our guides for each cityhere.
For more information about investing in UK property,get in touchwith our team today.
The other side of the property coin – and a key economic trend in 2022 – will be the success of commercial property. A strong commercial property market is key to the economy as it relates to the job growth and economic recovery on which everything else is based.
Data from RICS shows that investment transactions in commercial property are now ahead of where they were in 2019, and the number of new deals has also reached close to parity. This is a good sign for the market and has led to a positive mood in the industry.
Around two thirds of respondents to the RICS UK Commercial Property Monitor consider the market to be in the early- or mid-phase of the upturn – the highest proportion taking this view since the end of 2015. Meanwhile, less than one in five contributors to the survey still see the market in a downturn.
The same report shows that capital values of commercial property could climb as much as 11% in the next 12 months. This will be driven by tenant demand which is consistently taking up the available space and is at a level where new commercial space coming to market will also be filled.
The strength of the commercial market is a great sign for 2022, and we expect to hear more good news as the year progresses.
The national GDP is recovering well from Covid-19 disruptions. We expect that 2022 will not only see that job completed, but will expand beyond pre-pandemic levels. Analysis fromS&P Globalexpects 4.6% growth in the national GDP overall, a strong level which shows the UK is on track for its best year yet.
This puts the UK in line with theOECD’s international projections. The organisation expects 4.5% growth in the global economy over 2022 as the demand for consumer goods increases again and manufacturing rises to meet it.
The aforementioned property trends will have a major effect on the growth of national GDP in the UK. Housing is one of our national economic pillars, and strong economic growth will naturally contribute to increased demand for housing. The more spending power people have, the more likely they are to buy a new property and boost the housing market further.
The issue of inflation is a major economic trend for 2022. The government has set the Bank of England atargetto keep inflation at 2% or lower over the year, and how the Bank sets about doing this is a matter that will be of interest to all investors.
The Bank has warned that inflation is likely to go higher than that, with many estimates expecting inflation rates of up to 5% over the course of the year. In response, there are likely to be further rises to the base rate of interest, currently set at 0.25% following a rise in Q4 2021.
It is speculated that at least two further increases to this base rate are likely in the next 12 months, although no analysts think that rises will be so high that it affects any economic recovery. It is likely that the overall base rate will be kept at around 1% by the Bank – a reasonable level that offers benefits in all areas.
What does this mean for property? The obvious area this will affect is the mortgage market. Some lenders have already increased their mortgage interest rates in response to projected rising interest rates, but many other products are being held at favourable rates for the time being as lenders wait and see what happens.
While investors should make sure to be aware of changes to the interest rate on mortgages, as it will affect their repayments, it should not be a cause for too much concern. The average house price is rising so fast, with rents growing at a similar pace alongside them, that any minimal increases in mortgage interest rates will be swallowed up by the income you will receive in the first year of investment. As far as 2022 economic trends go, inflation is something to be aware of, but certainly not something that should put investors off.
Find out more about how rising inflation might affects mortgage interest rates forhomeownersand buy to letlandlords.
The UK economy is in a good position, and the housing market is in an even better one, going from strength to strength in spite of non-ideal economic conditions. This is the perfect time to invest in UK property and make the most of its reliability and profitability. To learn more about how to invest and the UK’s best markets,get in touchwith our team today.