Study reveals house price growth stalls after 28 consecutive months of growth
The latest RICS Residential Market Survey has revealed that new buyer enquiries fell for a sixth successive month in October as the headline net balance weakened further to -55% in October (from -36% last time). Moreover, the survey feedback on buyer demand is negative across all parts of the UK, the second report running where this has been the case.
In addition to this, it was found that the average time to complete a sale from its initial listing has risen, now taking close to 18 weeks. At this point last year, the average completion time was closer to 16 weeks.
According to the study, house prices are showing a decline in momentum. The national net balance for house prices moderated to -2% in October, down from a figure of +30% previously. This ends a run of 28 positive monthly readings.
The survey indicates the regional differences in house prices, with respondents in areas such as East Anglia and the South East of England reporting some pull-back in prices (posting net balances of -31% and -16% respectively). Conversely, respondents based in Northern Ireland and Scotland continue to report that a reasonably firm upward trend in house prices is remaining in place, even if the pace of growth is softer than earlier in the year.
The study outlined how the net balance for the twelve-month price expectations series sank to -42% in the latest findings, falling from a reading of -18% last time. The view from respondents across all parts of the UK are now (on balance) of the opinion that prices will see some degree of decline over the year ahead.
Simon Rubinsohn, Chief Economist, commented:
“The latest feedback to the RICS survey provides further evidence of buyer caution in the face of the sharp rise in mortgage costs. As a result, the volume of activity is likely to slip back over the coming months and realistic pricing is now much more important to complete a sale. The settling down in financial markets could provide some relief although it may be premature to assume this will be reflected in a reduction in lending rates anytime soon. However, the employment picture remains critical to the medium-term outlook and for the time being, that remains solid.”
Sarah Coles, senior personal finance analyst. Hargreaves Lansdown, provided further commentary on the findings in the survey as she stated:
“Even naturally optimistic estate agents are starting to think that the writing is on the wall for house prices. The chaos in the mortgage market in the aftermath of the mini budget has been devastating, and the looming recession is likely to take an even bigger toll. House prices have already stalled, and in some areas they’ve started falling.
Mortgage rates have since dropped back slightly, and the Bank of England has been keen to emphasise that inflation is nearing the peak, so rate rises may not need to be so big or so numerous in future. However, they also warned of a two-year recession looming, which is going to dent buyer confidence even further. The risk of your mortgage rate rising and becoming incredibly difficult to afford is bad enough, but the risk of losing your job and not being able to afford it at all is horrendous.
Buyers and sellers have decided now is not the time to take the plunge, and have packed up and gone home. This was the sixth consecutive month where the number of new buyers fell – and the numbers are weakening more quickly now too.
As a result, property prices have stalled. In some areas agents are already reporting that prices are on their way down, and because momentum is so important in the market, where we get small price drops, there’s the risk they help to fuel more significant falls. It’s one reason why agents are resigned to a market correction in the coming year.”
Coles outlines how this may not be bad news for everyone, but could pose significant problems for those who have recently bought a house, as she continued:
“If prices fall far enough, it could also cause problems for anyone who has bought relatively recently who needs to remortgage or move, and finds themselves trapped by negative equity. Technically it could be better news for anyone trying to get onto the property ladder or trade up. Unfortunately, it also makes both of these things riskier. First time buyers are likely to have smaller deposits, while second steppers will be significantly eroding the equity they have by moving to a more expensive home, so both will face the risk that prices could fall far enough to push them into negative equity.”
Simon McCulloch, Chief Commercial & Growth Officer at Smoove, said:
“The latest results indicate home buyers are demonstrating greater caution. The Bank of England’s interest rate hikes driving up mortgage repayments and inflation squeezing buyers’ budgets means new buyer enquiries are cooling. While markets have calmed since the government’s mini budget and the arrival of a new Prime Minister, mortgage rates are still very high compared to what they were only a few months ago, and this is likely here to stay.
Despite these results, the Bank of England has indicated that interest rates will likely not rise much higher than their current level, suggesting we are at least nearing the peak rate. In addition, these challenging market conditions may present a chance to improve the property market’s processes. The yearly increase in the average time required to complete a sale shows there is a clear opportunity to streamline property transactions and dismantle barriers to entering the market.”
