The Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey found that buyer demand weakened last month, with surveyors giving a score of minus 26%, down from minus 15% in January.
Agreed sales also slipped from minus 9% to minus 12%, but the RICS said this was not as negative as it had been for the last six months. However, it said recent uncertainty over geopolitical events and the economy had thrown this into question.
Surveyors gave a score of minus 2% for near-term sales expectations, the weakest score since November last year. Over the next 12 months, there seemed to be more optimism, as surveyors gave a score of 17% for future sales activity. This was considerably weaker than the 35% score given in the previous survey, however.
Regarding housing supply, respondents returned a score of 2% for new instructions, suggesting the flow of properties coming to market was stable. The score for market appraisals was minus 5%, again pointing to steady activity.
Surveyors gave a reading of minus 12% for house prices, down slightly from minus 10% previously but indicating a “flat to marginally negative trend”. This was more pronounced in London, where respondents gave a score of minus 40%, the South East at minus 24% and East Anglia at minus 26%. In contrast, house prices in Northern Ireland, Scotland and the North West of England were trending upward.
In the near term, respondents gave a score of minus 18% for house price growth – weaker than the reading of minus 6% at the last survey – but had expectations that values would rise in the future, indicated by a score of 33% for house prices in the next 12 months. However, this was softer than the score of 43% given at the last survey.
An already cautious housing market
Jeremy Leaf, North London estate agent and a former RICS residential chair, said it was interesting that the survey did not reflect recent geopolitical uncertainties, as it showed the market was already cautious.
He added: “Confidence has definitely improved this year compared with the end of last but remains relatively fragile and won’t be helped by worries that inflation and interest rates may not have peaked after all, as was expected only a few weeks ago.”
Emma Cox, managing director of real estate at Shawbrook, said: “A notable dip in buyer demand and largely stagnant house prices demonstrates the increased volatility impacting the market.
“Lingering concerns over affordability, inflation and interest rates are now being compounded by wider macro events, reinforcing market expectations that borrowing costs could remain higher for longer and prompting some buyers to take a more cautious approach.
“However, this could see more would-be purchasers turn to the rental market in the meantime, presenting opportunities for professional landlords to meet sustained demand by providing high-quality, energy-efficient homes.”
Tom Bill, head of UK residential research at Knight Frank, added: “Demand had been recovering after the uncertainty caused by November’s Budget, but the Middle East conflict will dampen sentiment during a traditionally busy period for housing transactions. People will still need to move but geopolitical instability will increase the mood of hesitation while rising mortgage rates due to energy price spikes will curb spending power.
“That said, a weak labour market is one reason that the underlying case for multiple rate cuts this year still stands and the longer-term impact on buyers and sellers hinges on how long the disruption lasts.”
Tarrant Parsons, the RICS’ head of market research and analytics, said: “February’s survey highlights renewed volatility in the market. While activity indicators at the start of the year suggested a tentative improvement, the deterioration in the geopolitical backdrop has clearly weighed on confidence.
“The recent rise in oil and energy prices has also increased the likelihood that mortgage rates will remain higher for longer. As a result, near-term expectations have softened. Although the 12-month outlook remains positive overall, maintaining that trajectory will depend on the recent spike in inflationary pressures easing in the months ahead.”
Rental prices to rise
The RICS survey found that tenant demand was stable in the three months to February, with a score of 2%, while landlord instructions remained negative with a reading of minus 27%, suggesting a subdued flow of rental listings coming to market.
Looking ahead, surveyors gave a score of 20% for rental prices, indicating that this would rise in the next three months.
Leaf said: “Now that the Renters’ Rights Act is almost upon us, many landlords are trying to sell when tenancies end or come up for renewal. This has resulted in lack of choice for tenants, thus keeping rents at a higher level than might have been expected due to continuing cost-of-living concerns.
“However, turmoil in the Middle East may make some tenants think twice before committing themselves until the picture is clearer.”
