New buyer demand in May most upbeat in a year – RICS

New buyer demand in May most upbeat in a year – RICS

RICS’ latest Residential Market Survey has revealed both new buyer enquiries and agreed sales readings were at their least negative in 12 months.

Specifically, the net balance for new buyer enquiries – the proportion reporting a rise minus those reporting a fall – was -18% in May.

While RICS describe the trend in demand as “subdued”, the figure of -18% is up from a net balance of -34% in April and represents the least negative figure over the past twelve months.

RICS said this trend is “consistent across the country”, with a less downbeat trend reported in every region when compared to January figures.

What’s more, the agreed sales indicator returned a net balance of -7% this month, “noticeably less” downbeat than figures of -29% and -18% seen back in March and April respectively. RICS also said the latest net balance for near-term sales expectations was recorded at -7%, representing the least pessimistic view from respondents since May 2022, up from -17% in April.

Regarding the twelve-month time horizon, the sales expectations net balance stands at +2% – having previously sat at +3% – and is consistent with a “generally steady” sales outlook, said RICS.

New instructions of chartered surveyors rose by a net balance of +14% of survey participants during May, breaking a run of 13 successive negative monthly readings and marking the strongest reading since March 2021.

With regards to house prices, a net balance of -30% of respondents reported a further fall in national prices in May. However, this continues an upwards trend amongst the past three reports, having hit a recent low of -46% in February.

RICS also noted variations in house price trends across different parts of the UK. In London, for example, the net balance of -3% indicates a “mostly steady picture” – up from readings of -42% and -11% in March and April. The net balances across the East Midlands (-68%) and the South East (-48%) were seated most deeply in negative territory.

“While many metrics clearly indicate some improvement in market conditions, recent disappointing inflation figures will likely lead to the Bank of England taking further action, with further interest rate rises expected to stifle the market,” said RICS alongside the release of their report. Their Senior Economist Tarrant Parsons issued a similar warning:

“The latest RICS UK Residential Survey feedback indicates a modest recovery in the sales market activity during May, with generally less negativity compared to the end of 2022.

However, it seems storm clouds are gathered, with the UK’s stubbornly high inflation likely undermining the recent improvement in activity by prompting the Bank of England to take further action through interest rate rises, leading to higher mortgage rates and ultimately reducing affordability and buyer demand. The banking sector appears to expect this with many banks and building societies already introducing products with higher interest rates.”

“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,” said Sarah Coles, head of personal finance, Hargreaves Lansdown:

“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.

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.”

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