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Lack of supply props up UK house prices despite falling buyer demand – RICS

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  • 11/08/2022
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House prices continued to rise in July although the demand for purchase fell away.

According to the Royal Institution of Chartered Surveyors (RICS) residential market survey for July, new buyer enquiries reported a negative reading for the third month in a row. RICS said this was the longest stretch of falling buyer demand since the start of the pandemic and noted that purchase interest had dropped across the UK. 

New buyer enquiries had a score of negative 25 per cent in July, almost flat on the reading of negative 27 per cent in June. 

RICS survey statistics are presented as scores between negative 100 and 100, with negative scores implying a decline, and positive readings suggesting an increase.   

Respondents alluded to rising interest rates and the cost of living as reasons for the slowdown in activity, however, RICS noted that responses were gathered before the most recent 0.50 per cent increase to the base rate. 

At the same time, 63 per cent of respondents said they had seen a rise in house prices in July, similar to the 65 per cent who said the same in June. This was a softening of the recent high of 78 per cent of surveyors who reported rising house prices in April. 

However, RICS said July’s score was running 13 per cent above the long run average and was still suggesting an upward trend. 

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “We are finding at the sharp end that the desire to move is outweighing worries about continuing increases in interest rates and the cost of living.

“On the other hand, those concerns are disproportionately affecting lower income households which is compromising the bottom of some chains, resulting in fewer and lengthier transactions. Demand is supported in particular by lack of choice, low unemployment and rising rents so prices are still growing for now at least – albeit more slowly.”

Emma Cox, managing director of real estate at Shawbrook, said that the property market continued to show “resilience” and many buyers “remain committed to going ahead with their plans”. She noted that risk of recession and cost of living could dissuade people moving in the future.

“On a more positive note, lenders are continuing to offer competitive mortgages and loan to values (LTV), which can offer better protection against further rate rises. What isn’t quite as clear, especially during the change of leadership in Westminster, is how the government intends to support landlords and homeowners to ensure the UK has a long-term supply of high quality, energy efficient homes,” she added.

 

Stock nears all-time low 

Registered estate agents had an average of 36 available homes per branch in July, which RICS said was close to an all-time low. Respondents also said there was little change to the number of appraisals taking place, indicating stock is unlikely to recover soon. 

Regarding new instructions, this recorded a score of negative five per cent also suggesting a lack of new homes coming to market. 

Tomer Aboody, director of property lender MT Finance, noted: “The latest data points to a fall in demand from buyers due to a less bullish outlook following numerous interest rate and inflation increases.

“However, despite the number of new buyers edging downwards, property prices continue to rise due to the continued lack of stock. With little change in the number of market appraisals, it looks as though supply is unlikely to improve in the near future, which will continue to support price rises, although at a more moderate pace.”

Sales expected to slow 

Surveyors reported a slowdown in sales over the month, with a score of negative 13 per cent, almost flat on the negative 14 per cent cited in June. 

This is predicted to continue in the year ahead, with negative 20 per cent of respondents expecting a reduced number of sales in the next three months. This compares to a reading of negative 11 per cent in June. 

Over the next 12 months, sales expectations fell to a reading of negative 36 per cent, down on negative 21 per cent the month before. RICS said this was the “most downbeat” sentiment towards future sales expectations since March 2020. 

 

Rental tenant demand rises 

Some 36 per cent of respondents reported a rise in rental tenant demand, while negative eight per cent witnessed a decline in new landlord instructions pointing to constrained supply. 

Tarrant Parsons, senior economist at RICS, said: “Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum. With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.  

“Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.” 

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