Record low stock numbers, political uncertainty and the aftermath of tax changes are obstacles hindering the UK housing market, according to the RICS UK Residential Market Survey, with price growth and sales activity subdued during the month of July.
This month, the headline price growth gauge slipped from +7% to +1%, signalling prices were broadly flat over the period and representing the softest reading since early 2013. Nevertheless, the national figure conceals diverging trends across parts of the UK. Indeed, house prices remain quite firmly on an upward trend in some areas, led by Northern Ireland, the West Midlands and the South West.
By way of contrast, the net balance reading for central London remains negative with the pace of decline broadly matching that of the previous three months. Moreover, chartered surveyors are starting to report early signs of this flatter trend permeating outside the capital, as the price balance for the South East of England fell into negative territory, posting the weakest reading for this part of the country since 2011.
In an extra question, contributors to the July survey reported on sales prices in comparison to their asking price. Nationally, homes at the top-end of the market (those listed at more than £1 million) saw the greatest deviation in agreed prices, with 68% of respondents reporting sales prices coming in below the asking price. While this is not uncommon in a flatter market, 33% of respondents said the agreed price was up to 5% below the asking price and 26% reported between 5% and 10% under.
Looking ahead, near-term price expectations continue to signal a flat trend over the coming three months at the headline level. Over the next twelve months, respondents remain more optimistic with a net balance of +28% anticipating an increase in prices, albeit this was the least positive reading since last July at the time of the EU referendum results. Again, central London continues to exhibit the most cautious twelve-month projections relative to all other parts of the UK.
Alongside this, sales activity continues to lack momentum, with the net balance readings for buyer enquiries and agreed sales remaining slightly negative, at -4% and -5% respectively. Respondents are not anticipating activity in the sales market to gain impetus at this point in time, with both three- and twelve-month expectations series virtually flat.
The main element holding back the market continues to be a sustained deterioration in the flow of fresh listings, with new instructions dwindling for the seventeenth consecutive month during July. Consequently, average stock levels on estate agents’ books remain close to record lows, limiting choice for potential home buyers.
In the lettings market, the quarterly figures also portray a more subdued picture. Although tenant demand continued to edge higher, it did so at the slowest quarterly pace going back nearly twenty years. Meanwhile landlord instructions continued to fall, with 8% of respondents reporting a decline instead of an increase in listings. The sustained lack of supply means rents are expected to grow, albiet only modestly in the coming three months. And, looking a little further, they are projected to increase by a little under 2% nationally over the next twelve-month point.
"Sales activity in the housing market has been slipping in the recent months and the most worrying aspect of the latest survey is the suggestion that this could continue for some time to come," said Simon Rubinsohn, RICS Chief Economist.
"One reason for this is the recent series of tax changes, but this is only part of the story. Lack of new build in the wake of the financial crisis is a more fundamental factor weighing on the market. And there are some very real consequences for the economy from all of this including the impact on the ability of people to be mobile when looking for work.
"The flatter trend in price growth is arguably a silver lining, but there is no real indication that the housing market will become materially more affordable anytime soon. Hence the need for the government to press ahead with the Build to Rent initiative, as well as continuing to focus on other tenures alongside home ownership to try address this critical issue."
