Publishing the results of its January UK Residential Market Survey, RICS said the market needs a turbo boost.
The results show the sales market lacks momentum, with transaction volumes and enquiries both seeing relatively little change over the month (on a seasonally adjusted basis).
A net balance of only 5% of surveyors reported an increase in demand, the softest reading since August last year. Stock on estate agents’ books is close to historic lows as new instructions deteriorated, having held broadly steady over the past three reports.
RICS said the national new instructions indicator has now failed to post a positive in reading in 11 consecutive months.
Meanwhile, a shortage of supply remains a challenge in the lettings market – an issue likely to worsen over the medium term – as respondents expect landlords to decrease their portfolios over the next three years.
“The scale of the challenge government faces as it announces its new approach to housing is clearly demonstrated,” said RICS chief economist Simon Rubinsohn.
“Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium-term view of RICS professionals is that both house prices and rents will continue to grow at a faster pace than wages, putting even greater pressure on affordability.”
He added: “Whether the measures announced can ease this trend remains to be seen.”
While sales were flat (in net balance terms) for the second month in succession, there were regional variations. The sales balance rose firmly in the South West while, at the other end of the scale, it declined in central London.
Surveyors’ near-term expectations have strengthened, with the net balance rising from +3% to +15%. At the 12-month horizon, confidence in the outlook continues to improve as the balance of respondents anticipating sales to increase hit a one-year high.
Scotland and Northern Ireland exhibit the strongest 12-month sales projections, but all areas are expected to see an improvement in activity over the year to come. Most parts of the UK are seeing price rises, with London the only area where near-term price expectations are negative – the data chiefly reflecting performance in the inner boroughs, rather than outer zones.
London surveyor Toby Whittome, of Jackson-Stops and Staff, appealed to government to act. “Please reduce Stamp Duty urgently, you will see a big increase in activity, therefore income, but also a significant increase in confidence which would not be a bad thing at this point in time,” he said.
In the rental market, the flow of new landlord instructions failed to improve for a fourth consecutive quarter. RICS said the lack of listings may become an even greater issue ahead, with changes to Stamp Duty, alongside scheduled cuts to mortgage interest tax relief, both seen as important factors diminishing the attractiveness of buy-to-let as an investment.
With a net balance of 28%, more respondents feel landlords are likely to decrease (rather than increase) the size of their portfolio over the next 12 months. Over the next three years, 26% more contributors expect landlords to scale-back their portfolios.
However, during the three months to January, tenant demand continued to increase at the national level, albeit modestly. The imbalance between supply and demand is expected to squeeze rents higher at each time horizon.
Angela Kelly of estate agency Hurford Salvi Carr said: “As more and more landlords complete their tax returns this month, they are all seeing their investments perform badly and with less allowable expenses they are all rather depressed and reassessing keeping their investment.”