The housing market is facing a myriad of challenges in the lead up to the UK General Election as demands for rental properties soar alongside a decline in supply.
The latest RICS residential survey has found that confidence in the country’s housing marking is beginning to ‘ebb’ despite an improved outlook in recent months. Demand in the private rental sector has outstripped supply, and concerns for homeowners over 55 have increased during the cost of living crisis.
Renters are now grappling with ever rising living costs and plummeting affordability levels. RICS say they are ‘interested to see how the next government faces issues in the lettings market’ as tenant demand rose to a net balance of 35 per cent, an increase of 10 per cent in May. RICS claims that ‘the growing gap between supply and demand for lettings indicates that rental prices will continue to rise for the foreseeable future, albeit at a slower pace than previously’.
Anthony Codling, Marketing Director at Equity Research says the supply of homes for sale continues to increase, despite concerns regarding demand and supply.
He said: “According to the latest RICS data, the housing market saw a bump in the road in May, new buyer enquiries and house price expectations dipped as the prospect of mortgage rate cuts shifted to the right. However, the supply of homes for sale continues to increase and the 3-month and 12-month view of sales are looking up not down. The scene is set for recovery once the election is done and dusted and the first rate cut is seen.”
The latest survey has shown that confidence regarding an imminent cut in interest rates has decreased, and the cost of living crisis continues to bite both tenants and homeowners – who are in a dangerous financial lockstep. Findings show that there has been a small drop in new buyer demand in the sales market, with a eight per cent result recorded nationally compared to the flat picture reported in April. This latest figure is the lowest reading for new buyers since November 2023. Buyer demand was weakest in the South East and South West of England.
Respondents to the survey also reported a fall in the number of sales agreed during May, although, it is expected that sales volumes have been predicted to rise modestly over the coming three months. Moreover, the outlook for the next year remains relatively ‘upbeat’ claims RICS, with 43 per cent of survey participants anticipating an uplift in sales activity, rising from 33 per cent in April.
House prices have continued to retreat nationally, posting a 17 per cent result compared to seven per cent in April. Consequently, having been steady in both March and April, the latest data suggests that house prices fell slightly in May. Regionally, Scotland and Northern Ireland saw house prices continue their upward trajectory. RICS Chief Executive, Justin Young, said:
“Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos. While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options. This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.
“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation. With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.
“With higher interest rates continuing to hamper first-time buyers, politicians are looking to win support from this group of buyers –as the Conservatives have done with Help to Buy 2.0 and Labour with the Freedom to Buy promise.
“Many millions of voters are feeling both cost of living, and market impacts; the political parties see this and are trying to entice the electorate with proposals in their manifestos this week.”
However, the outlook for the future is looking more positive, with economists predicting that the recent recovery could forecast a ‘more positive’ trend in sales activity.
Tarrant Parsons, RICS Senior Economist, said: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”
