Assessment of our 2022 predictions:

Our predictions in the past have been pretty accurate, so what about the predictions we made in January 2022 for the UK property market in 2022:

• Phrase; what phrase will best describe the residential market in 2022? For 2020 and 2021 we used “optimistic”; which was accurate! For 2022 I think “boringly optimistic”. Returns will not be as good BUT it will be a good, positive, stable market with limited volatility. Robust and resilient! Broadly correct, prices ticked up over the year, though perhaps not boring!

• Capital values: Direction: upwards, Magnitude: 4%. A national house price increase of 4%, hardly exciting but this is a mature, stable, low volatile asset class. This is the national figure, there will be large regional differences. Correct, it would have been higher were it not for the political mess at end of 2022

• Timing and Transactions: we don’t see any major triggers for changes throughout the year like the end of a stamp duty holiday. We expect a strong Spring, quieter summer, and a stronger autumn as confidence returns and covid comes under control and we learn to live with it. Less shocks and bumps than 2021! Well that was WRONG. It was impossible to predict the political and economic hiatus that happened. There were major triggers for change.
• Long term capital appreciation: Our 2016 prediction of a 5-year capital return of 23%; was exactly correct to 2021! We were very proud of that prediction. Our prediction for 2019-2023 was 17% (Savills 15%), and for 2020-2024 15% (Savills 13.5%) and now for 2022-2026 18% (Savills 13%); to date 2% in 2019 actual, 6% 2020 actual, 10% 2021 actual. Steady away, remember this is only capital appreciation, combined with an annual net rental yield of say 5% per annum in the Midlands, makes for a very attractive blended return of capital appreciation and annual rental yield. This remains to be seen. The residential property market is up strongly since covid started, perhaps 25%. Many commentators predict 10% weakness in 2023 then in 2024 price recovery again.
• Regional variations in property prices: The market is highly fragmented and it is imperative that residential property is purchased in the right location (location, location). For our favoured region of the East Midlands we predict +5%. The “East” (East Midlands and East of England) are economically vibrant and will benefit from economic recovery post covid, as well as the “escape to the country” trend. This would seem correct
• Rental growth: Will be 3%, or in real terms flat. There is continued constrained supply of rental stock (buy to let supply continues to fall), whilst tenant demand continues to grow. Technology has enabled the younger generation to have more job mobility, more flexibility and so more demand for renting. Correct, but for choice rental growth was probably even greater, perhaps 5-10%
• Interest rates: difficult one! Base rates are at 0.25% now. With continued high inflation small increases in interest rates can be expected. We expect a base rate of 0.75% at year end. This is still exceptionally low. WRONG, this was the main error in predictions, but in fairness I don’t think anyone would have predicted what happened. Not that I am looking for excuses!
• Mortgages: Increases in interest rates will act as a drag on the amount buyers can borrow relative to their income, but still be readily available with good supply. This was correct, but in last quarter the mortgage market became very tight.
• Prime Central London: London is one of the most amazing cities in the world. In the 7 year period to 2021 the market fell c20%. Last year, there were glimmers of life in the PCL market primarily driven by buyers of larger houses. We forecast an increase of 7% for 2022 driven by affluent domestic and international buyers, many of whom do not need borrow. Over the next 5 years we predict 20% upside to prices. Wrong, prices did not increase 7% in PCL but were flat, BUT I am still bullish on London property, and London!
• Overseas buyers: as travel restrictions ease, and international travel commences more freely we expect an increasing amount of overseas buyers in the UK, principally in London. Correct, especially with the GBP still weak against the USD.
• Working patterns; homeworking and other hybrid working patterns will become more readily accepted in the UK. Combined with the eternal quest for better quality of life, we expect this to drive demand in desirable rural areas such as Rutland and Leicestershire. Correct
• Headwinds: I said last year that things would normalise to the “new-normal”. I think that correct and we now know about covid and its effects and we must learn to live with it. Sentiment will continue to improve, vaccines do work, headwinds will subside, and come the end of 2022 we will be back to business as usual in our “new normal” world! Crikey, I hope the end of 2022 was not “new normal”, wrong!
• A couple of other random predictions for 2022: for entertainment purposes only! our stock pick for the year is cvs health at $103, $93 at end of year but with $ strength this was flat for the year in GBP, a strong outperformance of most global markets! tesco at 293p will be taken over wrong but quite a long shot!, we continue with our short of bitcoin (E38000) fabulously correct E15,500 a 60% return, the S&P500 will fall correct down 19%, the FTSE 100 will rise correct 2%. Sterling will strengthen further against the euro to E1.25, wrong E1.12. Boris will remain Prime Minister (Rishi Sunak will be the next PM in time) correct choice but sooner than I thought, and covid will mutate and weaken correct.
• We predict that these 2022 predictions will be OK! Forecasting is a foolish game, but there does seem to be a bit more visibility. There will continue to be shocks and extremes (of everything) but we will prevail and prosper! Shocks and extremes and a foolish game, all correct, but no more visibility!

Generally given all the uncertainties, especially the political changes AND the inflation, and in turn interest rate movements, we think the predictions were good, once again.

It is becoming SO difficult to predict movements over 1 year; things just change so quickly these days. The themes and longer term predictions on the whole are all good.

We understand the UK residential market and predictions on this over the long term have been very good. Importantly we got the direction of movement of the wider property market correct.