sold sign in front of housing in england

Market ‘downbeat but stable’ – RICS

The UK housing market remained downbeat in February but is showing signs of a more stable remainder of the year, according to the Royal Institution of Chartered Surveyors (RICS).

Their Residential Market Survey for February 2023 continued a “generally downbeat” trend, though several factors have offered encouragement.

For example, the seasonally adjusted reading for new buyer enquiries rebounded to a net balance of -29%, improving from -45% in January. While this still shows declining demand and represents the tenth consecutive negative monthly reading for new buyer enquiries, it is also the least negative result since July 2022.

RICS said this was also evident in some of the anecdotal remarks from survey participants stating how a more optimistic February has given the housing market some hope for the coming months after a “sluggish” start to the year.

Much of this sentiment around stabilisation was reflected in data released earlier in the week by Halifax which revealed house prices increased by 1.1% in February after dropping five times in the six months leading up to 2023. Annual percentage change in price also remained unchanged for the third month.

As well as this, RICS’ new sales indicator was less negative in February, improving from a net balance of -36% to -26%.

However, the average time taken to complete sales continues to rise and is now approaching 19 weeks.

“The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity,” said Tarrant Parsons, Senior Economist at RICS, adding:

“Going forward, near-term expectations suggest market activity will remain generally subdued over the coming months, although the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating.”

Sarah Coles, head of personal finance, Hargreaves Lansdown, was less positive, suggesting any optimism “may be premature”:

“Buyer and seller numbers continued to drop, agreed sales fell, and prices were on their way down. In order to shift properties, most people are now having to accept an offer. Despite pockets of enthusiasm, these aren’t signs of a rising market. When you add in the Bank of England’s figures showing rock bottom levels of mortgage approvals in January, it means we may well see more decline in the months to come.

The report highlighted the impact of stretched mortgage affordability, and to make matters worse, there have been subtle changes in the mortgage market which could make life even more difficult.

After months of rates slowly falling from the peak, we have seen some of the most competitive deals pulled from the market. Rate expectations are shifting slightly, as there are growing concerns that higher inflation might last for longer than expected. This is moving the swaps market very slightly, making it more expensive for mortgage lenders to price a fixed rate – so that some of the best deals are off the table. This hasn’t moved the dial on average rates yet, but is one to watch.”

The seminal importance of interest rates was reiterated earlier this week by the National Association of Property Buyers (NAPB), who said any crash in the market can be averted if the Bank of England avoids further base rate increases. The NAPB’s Jonathan Rolande said:

“We really are at a pivotal moment. For those with any kind of debt the rise and rise of rates, courtesy of The Bank of England, has chipped away at disposable income…

…We can only hope […] the Bank of England […] spares homeowners from more rate rises. If they don’t, we risk seeing prices fall even more in the future.”

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