Economic and property market update for 2022
Economic forecasts
The Autumn Budget in October 2021 revealed some incredible statistics and forecasts for the economy over the next year or two – nothing like the doom and gloom that was being predicted even until just a few months ago.
Historically, the UK’s annual Gross Domestic Product growth has been around 1.5 per cent to two per cent, but for 2021, this was revised upwards, from four per cent to 6.5 per cent. That increased level of growth would mean returning to the same level of Gross Domestic Product as we had before the pandemic. 2022 is looking good, with a further six per cent rise, then forecasters are suggesting we’ll go back to more ‘normal’ growth rates in 2023 and 2024.
Unemployment – which was forecast to rise as high as 11 per cent at one point – is now expected to hover around five per cent. With a historic unemployment rate of between three and five per cent, that’s on the higher side, but considering this includes the end of furlough, it’s another incredibly positive forecast.
Wage inflation is expected to be up by 3.5 per cent in real terms year on year for 2021. And with the minimum wage rising to £9.50 from April 2022 and the news that we have the highest number of job vacancies for 20 years, wages are likely to continue to rise.
So far, most of this is good news for the property market.
Low unemployment means landlords are less likely to experience rent arrears and forced evictions, while a rise in wages supports rental growth. However, there are three forecasts that could potentially impact landlords adversely.
Firstly, the rise in wages means the costs associated with letting a property are likely to go up – from agent fees through to paying contractors for maintenance, e.g. repairing a roof, servicing a boiler or cleaning.
Secondly, inflation is predicted to be four per cent on average for 2022, twice the Government’s target increase of two per cent, which will also impact on anyone having work carried out. There have already been reports of rises in the cost of materials – up by over 20 per cent in some cases – so this could add significantly to the overall cost of property renovations and upgrades.
“We have already started to experience increased claims costs in 2021 through surface flooding and a rise in the cost of labour and materials to carry out repair work. We are doing our best to hold down our premiums, but can already see inflation driving insurance premiums up by 15 per cent or more. When you come to re-insure, do check your landlord, rent guarantee and other insurance quotes to make sure that they continue to provide good value for money in 2022.”
– Steve Barnes, Associate Director, Hamilton Fraser Total Landlord Insurance
You can find out more about the current ‘hardening’ of the insurance market and what you can do to stay ahead of the curve and avoid hefty payouts in our article, ‘Six risks in a hardening insurance market and how to avoid them’.
