According to the Royal Institution of Chartered Surveyors (RICS) residential market survey for January, activity is expected to be muted in the near-term as the market gets used to the higher rate environment.
Responses suggested that new buyer enquiries fell to –47 per cent* in January, down from a score of –40 per cent in December. This made January the ninth month in a row where buyer enquiries generated a negative score.
Demand either fell or remained flat in all regions of the UK, the responses suggested.
Simon Rubinsohn, chief economist at RICS, said: “Although some respondents to the January RICS survey have noted a little more interest in the housing market as the new year got underway, the overall tone of the feedback still remains subdued which is not altogether surprising given the jump in mortgage rates since the autumn.
“Prices, meanwhile, are now beginning to reflect the shift in balance between demand and supply.
“However, it is questionable how much downside to pricing there is likely to be given that recent macro forecasts from the Bank of England and others are now envisaging a less harsh economic environment this year.”
The number of new listings coming to market declined, with a negative reading of –14 per cent of respondents citing a fall.
Matt Thompson, head of sales at Chestertons, said: “With fewer properties coming onto the market at the moment, we are sensing a degree of ‘buyer frustration’ starting to build, especially amongst those who are keen to move as soon as possible for personal or financial reasons.
“There are also a substantial number of buyers hoping to get ahead of the market and beat the rush by getting out on viewings and making offers now, before the market gets more competitive later this year.”
House prices slipped with a response score of –47 per cent compared to –42 per cent the month before, pointing to a depreciation of values. The sharpest declines in house prices were noted in the East Midlands and the South East.
Optimism ahead
Looking ahead, expectations for sales activity over the next 12 months received a net balance score of –20 per cent. This was compared to –42 per cent in December, indicating that respondents expect the market to pick back up eventually.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The degree of pessimism appears to be easing slightly. Since the horrors unleashed by the mini Budget, the reversal of an awful lot of measures means the market is forecasting lower rates than it was. As a result, fixed rate mortgages have been getting cheaper.
“Agents are increasingly hopeful that a combination of the two could persuade buyers to return.”
She added: “There’s always the risk that this optimism is misplaced. It remains to be seen how much damage has been done to buyer confidence during the past few months, and how the health of the market will hold up if the official figures feed us a monthly dose of misery.”
Emma Cox, MD of real estate at Shawbrook, said: “While this period of uncertainty is by no means over with market activity remaining subdued, positively house prices have shown signs of stabilising this month.
“Continued high inflation coupled with the raising of the energy price cap in March are still posing a significant affordability challenge for first-time buyers, while homeowners continue to grapple with higher mortgage rates.”
Rental demand strengthens
According to respondents, tenant demand rose to a net balance of 43 per cent across the UK. However, supply contracted as landlord instructions fell again with a reading of –14 per cent. This is the tenth quarter running where a decline has been reported.
Some 64 per cent of respondents believe Build to Rent will help to address the issue of supply in the market going forward, but just 48 per cent believe this part of the market will successfully boost supply in the long term.
Rubinsohn added: “The rental market continues to show strong interest from tenants and limited stock available which is keeping a firm momentum to rental growth.
“While Build to Rent clearly has a role to play in helping to fill this gap, the insights from the latest survey suggest that this is not going to be sufficient, at least in the near term, to address the challenge in this market.”
Richard Rowntree, managing director, mortgages at Paragon Bank, said the survey demonstrated “the strong level of tenant demand seen throughout 2022 has continued into this year”.
He added: “This is something we expect to continue as the private rented sector fills the gap created by undersupply of social housing and provides homes for tenants who want or need to rent a home.
“RICS survey respondents also noted a continuation of the downward trend in landlord instructions, sustaining the imbalance between supply and demand evident throughout last year. In addition to limiting the choice of homes available to tenants, this imbalance will likely fuel further rental increases in the short-term.”
Coles added: “There was more bad news for renters – as landlords continued to sell up and leave the market – for the tenth consecutive month. Some have decided to cash in while property prices are higher, others are getting out of the business because rising mortgage rates means they can no longer make the sums add up. They’re also being pushed out by punishing tax rules and tougher landlord legislation – both of which mean higher costs.
“Tenant numbers are still rising, which means more people chasing fewer properties, and pushing rents up.”
* RICS survey statistics are presented as scores between negative 100 and 100, with negative scores implying a decline, and positive readings suggesting an increase.
