A lot happened in the property market in 2021. This was a year that saw a stamp duty holiday distort a market that was already in a state of flux due to the pandemic; it has seen the redrawing of the commuter belt and a greater adoption of hybrid working; an enduring appetite for country living but also the resurgence of town and city markets.
The Knight Frank team has distilled the highs and lows of the last 12 months into a dozen key numbers, highlighting systemic issues, policy consequences, and hints at what may come to pass in 2022…
Knight Frank’s 12 numbers of 2021
UK market valuation appraisals (a leading indicator of supply) were at their highest level in ten years for the month of November. The figure was 6% up on November last year and 20% higher than November 2019, Knight Frank data showed. With the distortions of the stamp duty holiday and end of the furlough scheme behind us, it adds to the evidence that sellers are positioning themselves to act early in 2022.
Just how much did the first stamp duty holiday extension to June distort the residential property market? HMRC data shows a 62% drop in sales in July compared with June, the month that the maximum saving of £15,000 ended. Transactions in June were the highest for a single month since records began in 2005. The second highest figure was in March of this year, the date the stamp duty holiday was originally set to end. Unsurprisingly, supply and demand are still re-balancing as we head into 2022.
Nationwide recorded UK annual house price growth of 10% in November. Halifax data for the month shows the same trend, with quarterly growth at a 15-year high. Gravity-defying price growth is the result of competitive mortgage rates and tight supply, both of which we expect to reverse next year. This will increase downwards pressure on prices. Interest rates may rise more slowly, and supply could stutter if the Omicron variant proves to be more serious than the anecdotal evidence suggests.
Rents are now rising as steeply as they were falling at the start of the year. Rental value growth in prime central London (PCL) and prime outer London (POL) was 5.3% and 5.1% respectively in the three months to November. For PCL it is the highest figure since September 2010, a time when the rental market was shaking off the effects of the global financial crisis. In POL you have to go back to March 2004 to find a stronger rate of quarterly growth. It will take more than a minor setback with the Omicron variant to send this trajectory into reverse, as we explored here.
Corporate demand for rental properties has surged with the reopening of the economy. This was exemplified by Shell’s announcement that it would be moving its global HQ to London, which will drive tenant demand in the capital and Home Counties. Corporate demand matched pre-Covid levels in October of this year. Meanwhile, the number of new prospective tenants from all sources was 44% higher in November than the same month in 2019. Should the Omicron variant prove to be less of a threat than initially feared, we would expect demand to remain strong into next year.
Lettings supply fell steeply over the course of this year as the flood of short-let properties that came onto the long-let market dried up as staycation rules were relaxed. Furthermore, many would-be landlords sold in order to take advantage of the stamp duty holiday. This year, the peak month for market valuation appraisals (a leading indicator of supply) was February. The figure in November was down by 46%, underlining to what extent supply has fallen as demand surges, maintaining strong upwards pressure on rents.
The number of offers accepted in November reached a ten-year high as the capital moved firmly back onto the radar of buyers. In prime central London the figure was 116% higher than the same month last year. In Prime outer London there was a 25% increase on last November. It is indicative of how demand has shifted back towards London as the pandemic has evolved. In a sign of what may be to come, new demand is rising faster in London than elsewhere in the UK.
The difference between the highest and lowest sale prices for apartments has widened in prime central London over recent months as competition for the most in demand properties has intensified (typically with outdoor space, amenities and in a good state of repair). The difference between the lower quartile (the price point below which the bottom 25% of properties transacted) and the upper quartile (the corresponding top 25%) rose above £1,000 pound per square foot in July and has stayed there. The average difference throughout 2019 was £777 and £675 in 2020. This price differentiation is likely to continue into next year as pandemic uncertainty lingers.
In what is the highest figure since January 2019, 22% of all offers accepted in the UK in November were related to a move into London from outside the capital. The vast majority of buyers are looking for a bolthole in the capital, rather than to up sticks from elsewhere in the country, but predictions of cities’ demise due to the pandemic appear to have been wide of the mark. We explored here what is driving these so-called ‘boomerang buyers’, who are likely to keep London apartments on the map for buyers and tenants in 2022.
The annual rate of growth in The Prime Country House Index reached 10.6% in September thanks to strong demand for rural living and the associated supply challenges of 2021. This was its best performance since before the global financial crisis. Despite this, the index remains 4% below its Q3 2007 peak. In Scotland’s rural market, price growth hit 5.9% in the 12 months to September, which is the strongest performance since 2008. With a meaningful shift in the fundamentals unlikely, we expect price growth to remain strong next year.
The ratio of new prospective buyers (demand) to sales instructions (supply) stood at 12.8 in November, its highest level in more than eight years. It underlines that the escape to the country trend, fuelled by the pandemic, has been no flash in the pan. It also shows how supply has failed to keep up with demand as the shelves have quickly emptied. The situation was exacerbated by the stamp duty frenzy of the summer, which saw some sellers hold off from listing as they were unable to find somewhere to buy for themselves. We expect supply to build next year with January a prime time to act, as explored here.
The result of high demand and low supply has been that the traditionally slower moving rural market has sped up. In November, the number of days from a sale being instructed to an offer being accepted on a property outside London was down 16.4% compared with the same month in 2019. The number of viewings held before an offer was accepted stood at 13 in November 2021. This is its lowest level since December 2020, with buyers continuing to act decisively to secure homes in a tight market. A pick up in supply, which is to some extent dependent on variant news, should help supply and demand re-balance in 2022.