Shortage of supply in both the lettings and sales segments continue to present a huge challenge for the market, according to the January 2017 RICS UK Residential Market Survey.
In January, new landlord instructions in the lettings market failed to improve for a fourth consecutive quarter across the UK. Moreover, respondents predicted that this issue would worsen over the medium term and indicated that they expected landlords to decrease the size of their portfolios over the next three years
Changes to Stamp Duty in April, alongside scheduled cuts to mortgage interest tax relief, were both seen as important factors diminishing the attractiveness of buy-to-let as an investment as 28% more respondents felt that landlords were likely to decrease the size of their portfolio over the next twelve months. Over the next three years, 26% more contributors expected landlords to scale-back their portfolios. It is, however, worth noting that the sentiment survey was obtained prior to the latest housing announcements.
During the three months to January, tenant demand for rental properties continued to increase at the national level with the continued imbalance between supply and demand expected to squeeze rents higher. The exceptions to this pattern across the UK are to be found in London and Scotland where tenant demand is slipping back a little. Rent expectations essentially remain flat in Scotland, but are more downbeat in the capital.
Over the next five years, rental projections point to a cumulative increase of just over 25%, outpacing house price inflation over this time period (respondents anticipate prices will rise a little under 20% on the same basis.
"The scale of the challenge Government faces as it announces its new approach to housing is clearly demonstrated in the results from our latest survey," said
Simon Rubinsohn, RICS Chief Economist.
"Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium term view of RICS professionals working up and down the country is that both house prices and rents will over the medium term continue to grow at a faster pace than wages putting even greater pressure on affordability. Whether the measures announced can ease this this trend remains to be seen."
New buyer enquiries were more or less unchanged during January, although, with only 5% of surveyors reporting an increase in demand, this is the lowest reading since August 2016. New instructions, having remained flat for the past few months, deteriorated in January and have now failed to post a positive reading in eleven consecutive months. 11% more chartered surveyors saw a fall in new instructions in January rather than a rise, leaving average stock levels on agent’s books still close to historic lows.
At the same time, sales were flat for the second month in succession with 1% more chartered surveyors seeing a fall in sales over the month. This headline reading does mask regional variation with the sales balance rising firmly in the South West while at the other end of the scale, it declined in central London.
Sales are however predicted to improve in the near term with 15% more respondents expecting a rise over the next three months nationally. What’s more the balance of respondents predicting that sales will increase over the year to come reached a one-year high (+37 net balance).
Meanwhile, 25% more respondents saw a rise in prices, rather than fall in January, as prices tick back up. Looking across the UK, the past price balance deteriorated slightly in central London for the second straight report and has now been in negative territory for eleven consecutive months. Most other parts of the UK continue to see prices rise, with the North West returning the highest net balance for a third survey running.
Prices are expected to continue to rise over both the next three and twelve months across the UK in all regions except central London.
"Ministers must be credited with changing the course of the ship of state on housing," said Jeremy Blackburn, RICS Head of UK Policy. "They’ve listened to us on expanding supply not just pumping demand, and on giving institutionalised PRS much greater priority alongside owner occupation.
"Our survey demonstrates how vital greater supply is in this sector; we really need to turbo boost Build to Rent. The consultation on how to do this must be used as a defining moment.
"At the same time we need to stop punitive measures against our bedrock small landlords. The detail on the ban on letting agent fees is yet to come, and along with any overt forcing of longer tenancies, could dampen investment in buy-to-let overall. The government must be careful about signalling both stop and go at the same time."
