The latest RICS UK Residential Market Survey has revealed that new buyer interest fell for the fifth consecutive month in September, leading to RICS’ ominous declaration that “storm clouds are clearly visible” for the housing market.
The Royal Institution of Chartered Surveyors put the drop in demand down to “the outlook for interest rates and an uncertain macro picture”, adding that “the expected rise in mortgage rates over the coming six months [is] anticipated to outweigh any potential boost from the cut to Stamp Duty”.
New buyer interest fell again in September, with a net balance of -36% of respondents citing a fall in enquiries. New instructions to sell also continued to fall, with stock levels remaining at historic lows.
Estate agents (on average) are holding just 34 residential properties on their books, and the pipeline appears to have deteriorated further, with the net balance for new market appraisals dropping to -20% (down from -3% in August).
As the market loses further momentum, sales have unsurprisingly fallen over the month, with the September figure the most negative reading since May 2020 and the number of sales having now fallen for five months in a row. Looking ahead, sales expectations over the next three months and the 12- month sales predictions also remain negative.
RICS suggested that, while house prices have been being propped up by a lack of supply most recently, the data is notably less positive than previously and continues the trend since April 2022 of an easing in house price growth (it was net balance of +78% five months ago). This trend is visible across the whole of the UK.
Going forward, 12-month price expectations have now turned slightly negative, with respondents citing the expected further substantial rises in mortgage rates as a factor putting pressure on the market over the year ahead. At the national level, a net balance of -18% of respondents now predict a slight dip in prices over the coming twelve months, down from a reading of +3% last time out.
“The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market,” said Simon Rubinsohn, Chief Economist at RICS, adding:
“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.
How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.
For now, mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows. However, as lenders have been a lot more cautious through this cycle with high LTV mortgages accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market.”
