New figures from the June 2023 RICS UK Residential Survey indicate a fresh slump in sales market activity, driven largely by escalating interest rate expectations.
As borrowing costs rise, a majority of the survey’s indicators have further declined, albeit most remain above the lows experienced in late 2022.
The national net balance for new buyer inquiries dropped to -45% in June from -20% in May, marking an eight-month low for buyer demand. This negative trend was reported across all regions of the UK.
Newly agreed sales also fell sharply, with the headline net balance dropping to -34% in June from -8% the previous month. This is the most negative figure since December 2022, when the net balance was -38%.
Sales expectations for the near-term deteriorated to a net balance of -36% in June, a significant decline from the -9% recorded in the previous month. Looking at a 12-month horizon, -31% of survey participants anticipate declining sales, ending a three-month run of stable sales expectations for the year ahead.
The survey suggests that new sales instructions held steady in June, with average stock levels on estate agents’ books relatively unchanged compared to May. Nevertheless, current housing inventory remains notably low on a long-term historical comparison.
Regarding house prices, the national net balance declined to -46% in June from -30% in May, indicating a renewed downward momentum in house prices. All English regions reported falling house prices, with the sharpest monthly declines observed in East Anglia and the East Midlands.
Moving forward, national house price expectations for the next three and 12 months are decidedly negative. The latest net balance for the latter fell to -49%, marking the weakest price outlook since December 2022. However, house prices in Northern Ireland and Scotland are expected to hold steady.
Significantly, the survey found that homes with better energy efficiency credentials are maintaining their value, with 58% of respondents noting this trend. Additionally, 34% of contributors reported increased interest from buyers for more energy-efficient homes.
In contrast, the lettings market saw an increase in tenant demand in June, with a net balance of +40% of respondents reporting an increase. However, the net balance for landlord instructions dropped to -36%, the most negative reading since May 2020. Given this imbalance, a net balance of +53% of contributors expect rental prices to rise in the near term.
Reaction
Iwona Hovenko, real estate analyst at Bloomberg Intelligence:
“As expected, the sharply rising mortgage rates have made it even tougher for prospective buyers to afford a property, while also hitting a wider housing-market confidence – especially as it took just weeks for the mortgage rates to surpass the levels last seen amid the post mini-budget meltdown. This has spooked many potential homebuyers, as evident in RICS’ June survey.
“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. The next big test may be the July inflation data (to be released in August), which will include energy price cap falling by almost 20%.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“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.
“However, we saw in our offices very few actual withdrawals from purchases, although we did notice some renegotiation of terms, usually including price, on nearly every sale.
“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:
“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. Afterall, 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.”
Ben Twomey, chief executive, Generation Rent:
“Soaring rents since the pandemic are now having a knock-on effect on the number of homes being advertised to rent. Many tenants might want to move but simply cannot because the rent on a new tenancy is now far higher than what they are currently paying. That means fewer properties are becoming available and those that do are being snapped up more quickly by tenants who do need to move. That is keeping rents high and unaffordable for many.
“To bring rents back within reach of people on ordinary incomes, the Government needs to build more homes in the places people want to live. That must also include many more social homes so that people on low incomes can live near their workplaces and families.”
