The Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey for June showed that new buyer enquiries fell to a net balance response score of -45 per cent*, down from –20 per cent in May.
RICS said this was the lowest reading since October last year when the reading was -51 per cent.
Activity for newly agreed sales weakened in June too, with a net balance of -34 per cent compared to negative eight per cent in May.
Again, this was the weakest sentiment for some time, as RICS said it was the lowest reading since December 2022 when the net balance was -38 per cent.
In its report, RICS said: “This is on the back of the recent escalation in interest rate expectations. Indeed, as borrowing costs increased, many of the survey’s indicators fell deeper into negative territory this month, albeit most metrics remain at least somewhat above the lows hit towards the end of last year.”
In the near-term, surveyors’ expectations for sales activity recorded a score of –36 per cent. This was a four-month low and compared to a score of negative nine per cent in May.
Looking ahead to the next 12 months, -31 per cent of respondents expect sales activity to decline.
The level of available housing stock improved slightly, as respondents gave a score of negative one per cent for new sales instructions in June, up from -14 per cent in May. On average, estate agents had 37.4 available homes on their books.
RICS said although this was higher than the end of last year, it was low compared to historical trends.
Rate rises ‘hit like a missile’
The impact of higher interest rates on the housing market was noticed by professionals in the sector.
Iwona Hovenko, real estate analyst at Bloomberg Intelligence, said sharply rising rates made it harder for prospective buyers to afford a property and this affected housing market confidence.
She said this had “spooked” potential homebuyers.
Hovenko added: “The elevated mortgage rates may continue dragging the housing market for the foreseeable future, until there are signs of inflation getting under control and a clarity emerging about the end of Bank of England’s rate hikes. In turn, this could help reduce pressure on mortgage rates and help the housing market find its balance again.
“Unfortunately – given the faster-than-expected wage and inflation growth in recent months – there seems to be limited scope for mortgage rates falling markedly in the near term, which may weigh on housing activity in the coming months. The longer the mortgage rates remain near their current elevated levels, the larger the potential damage inflicted on house prices and transactions.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “There’s no doubt the latest rise in interest rates hit the market like a missile, prompting a pause for thought at the very least among buyers.”
He said his office saw a few withdrawals from purchases but there were negotiations on nearly every sale, usually including price.
Leaf added: “Listings are picking up but not as quickly as we expected, with interest on appropriately-priced properties continuing to be dominated by cash or equity-rich buyers.”
Tomer Aboody, director of property lender MT Finance, said: “As buyers await a more stable macro market with either a possible halt to rate increases or even potentially a reduction, sellers are also waiting before putting their properties on the market. After all, why try to sell now when buyers for the most of it are not active?
“This, in turn, is leading to forced sellers selling at lower levels. Until some respite comes from the Bank of England, we will likely see the housing market stagnate.”
House prices on a downturn
Surveyors reported seeing a decline in house prices and expected this to continue for the foreseeable future, the survey found.
A response score of -46 per cent was given when asked about house prices, suggesting there had been falls in June. This was down from a reading of -30 per cent in May.
RICS said house prices were declining across all English regions, particularly East Anglia and the East Midlands. However, Northern Ireland and Scotland appeared to be outperforming the rest of the UK with house prices rising in these countries.
Looking at the 12-month forecast for house price expectations, a response score of -49 per cent was returned compared to negative three per cent in May. This was also the weakest outlook since December last year.
Respondents said houses that were more energy efficient were faring better, as 58 per cent said these homes were holding their value. Some 34 per cent of surveyors also reported a rise in interest in homes that are more energy efficient.
The rental market
A net balance of 40 per cent of respondents said rental tenant demand had increased in June but landlord instructions fell to –36 per cent, pointing to a continued imbalance in supply and demand.
Some 53 per cent of respondents expect rental prices to rise in the near-term.
Simon Rubinsohn, chief economist at RICS, said: “The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key RICS metrics regarding buyer enquiries, sales and prices which have all retreated over the past month.
“Inevitably in this environment, activity levels are likely to remain relatively subdued. However, an important message coming back from RICS agents is around ensuring prices are set with an eye on the market conditions of today, rather than the recent past; when this is done, sales are taking place.”
Rubinsohn added: “It is also worth bearing in mind that house prices are only very modestly down on their recent highs and well above where they stood prior to the onset of the pandemic.
“Further declines are possible but need to be seen in the context of the previous strength in the market. Additional questions included in the latest survey also provide some support for the notion that, on balance, properties with better energy efficiency credentials are holding their value better than some others”.
* RICS survey statistics are presented as scores between negative 100 and 100, with negative scores implying a decline, and positive readings suggesting an increase.
