The Royal Institution of Chartered Surveyors (RICS) UK Residential Survey said the housing market continued to “lose ground” during the month.
New buyer enquiries recorded a net response score of -45 per cent, similar to the previous month’s -46 per cent, suggesting that there was a sustained downturn in buyer demand.
RICS said all regions and nations showed a decline in buyer interest.
Similarly, -44 per cent of respondents recorded a drop in agreed sales, a worsening of the -36 per cent score during the previous month. This was also the weakest reading for sales since the start of the pandemic.
In the near term, respondents do not expect sales activity to pick up over the next three months as indicated by the response score of -45 per cent. This was a weakening of the sentiment towards sales noted in June and May, when the response scores were -38 per cent and -11 per cent respectively.
When asked about sales for the next 12 months, respondents were less pessimistic and gave a score of -25 per cent compared to -31 per cent previously.
Terry Woodley, MD of development finance at Shawbrook, said: “Buyer confidence continues to be stifled by interest rate rises and challenging economic headwinds.
“As demand becomes subdued, developers are adapting their business models. Our research indicates that 39 per cent of developers are diversifying their strategies and focussing on different types of schemes which may include the likes of build-to-rent and houses in multiple occupation (HMOs) to adapt to the lessening demand from buyers.
“The most resilient investors will seek new opportunities to capitalise on and its crucial they work with a funding partner who can adapt with them.”
Drop in supply
The level of new housing stock coming to market worsened in July, according to respondents.
The response score for headline new instructions came to -13 per cent, which was weaker than the negative three per cent reading in June.
The number of market appraisals also recorded a -37 per cent reading and was lower than the previous year.
Estate agents had an average of 38 properties on their books, which was relatively unchanged from previous months. RICS said while this was higher than the recent lows seen at the end of last year, supply was still down compared to historical norms.
House prices are expected to fall too, with the response score falling from -48 per cent in June to -53 per cent in July.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said the report reflected what his firm had been seeing.
He added: “Activity has been compromised by continuing cost of living concerns and interest rates staying higher for longer but there’s now an expectation that both may be at or near their peak.
“As a result, we’re starting to see more determination to buy, but not overpay, particularly from first-time buyers suffering from ever-increasing rents, and a general belief that the extent of the market’s likely decline in some quarters may have been exaggerated.”
Rental demand peaks
The demand for private rented homes did not wane in July with 54 per cent of respondents noting an increase, which was the strongest quarterly jump in rental demand since the start of 2022.
Against this, landlord instructions continued to fall with a net response score of -30 per cent, down from -24 per cent previously.
Because of this imbalance, 63 per cent of respondents expect rental prices to rise over the next three months. This is higher than the 55 per cent who said the same in June and a new high for the series.
Simon Rubinsohn, chief economist at RICS, said: “The recent uptick in mortgage activity looks likely to be reversed over the coming months if the feedback to the latest RICS Residential Survey is anything to go by. The continued weak reading for the new buyer enquiries metric is indicative of the challenges facing prospective purchasers against a backdrop of economic uncertainty, rising interest rates and a tougher credit environment.
“Just as concerning are the insights being provided around the lettings markets. Demand shows no signs of letting up, supply remains constrained and that means rents are likely to continue rising sharply despite the cost-of-living crisis.”
