The Royal Institution of Chartered Surveyors’ (RICS) UK Residential Property Monitor for May 2023 has shown some positive trends, even as concerns about further interest rate hikes might introduce fresh downward pressure on the market in the months to come.
RICS recorded the least negative net balance for new buyer enquiries over the past twelve months at -18% in May, indicating a less pessimistic view of the market. This trend was witnessed across all regions in the country. Furthermore, the agreed sales indicator showed a net balance of -7%, considerably less downbeat than the -29% and -18% seen in March and April respectively.
New instructions have entered positive territory for the first time since early 2022, with a net balance of +14% of survey participants reporting an increase during May.
Despite these positive trends, the net balance for national house prices was -30%, indicating a continued decline, albeit at a slower pace than the -46% observed in February.
The report also noted substantial regional variations, with London’s net balance at -3%, signalling a stabilising housing market. Scotland and Northern Ireland also reported a rise in house prices. However, most English regions, particularly the East Midlands (-68%) and the South East (-48%), are still witnessing falling prices.
RICS senior economist, Tarrant Parsons, cautioned, “The UK’s stubbornly high inflation is likely to undermine the recent improvement in activity by prompting the Bank of England to take further action through interest rate rises. This could lead to higher mortgage rates, reducing affordability and buyer demand.”
The lettings sector is also feeling the heat, with demand outstripping supply. Rising interest rates and proposed changes in the UK Government’s Renters (Reform) Bill are driving landlords to exit the sector, exacerbating the supply constraints.
The RICS survey underscores the delicate balance between the nascent recovery and impending challenges posed by inflation and potential interest rate hikes, which may continue to shape the UK residential property market in the coming months.
Reaction
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“May was the calm before the storm, and even that was pretty dreary – with demand, house prices and sales falling. Mortgage rate hikes in the past two weeks will pile on more misery for the property market in the months to come, depressing demand and stifling sales. But it’s not just sellers who face a wretched summer, rising rates will also bring more grief for renters too.
“As Shakespeare almost said: ‘rough winds were indeed shaking the darling estate agent boards of May’. We saw demand decline yet again: it has been sliding relentlessly for well over a year now. This fed through into lower sales figures, and lower prices. Buyers were stymied by a toxic combination of runaway inflation and higher house prices, and they were concerned about what might lie ahead.
“When it comes to interest rates, they had every reason to worry. Towards the end of the month, the Bank of England revealed that inflation was stickier than had been expected, which rapidly raised interest rate expectations. These have been feeding through into higher fixed-rate mortgages ever since. The average 2-year fixed mortgage is now around 5.75% – up from around 5.3% before the inflation figures were announced.Â
“There’s every chance this will persuade buyers that this isn’t the climate to buy in. Halifax figures out yesterday showed house prices were flat in May, while Nationwide figures showed them falling. At times like this, buyers may think there’s less risk in waiting to see what happens to rates and prices before taking the plunge. Given that rates are expected to remain higher for months, this could seriously dent the market as we go through the rest of 2023.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Although we have found in our offices that viewing numbers are down and many buyers have the jitters about direction of travel for mortgage rates, we are not seeing withdrawal from previously-agreed sales or heavy renegotiations.
“Transactions are taking longer as lenders and surveyors are also more cautious but buyers and sellers are trying to find a way of making deals happen as confidence in the medium to longer-term prospects for the housing market do not seem to have wilted.”
