The housing market has lost further momentum in September, according to the latest RICS UK Residential Market Survey.
The outlook for interest rates and an uncertain macro picture have taken a further toll, with the expected rise in mortgage rates over the coming six months anticipated to outweigh any potential boost from the cut to Stamp Duty.
In September, new buyer interest fell again, with a net balance of -36% of respondents citing a fall in enquiries. This is the fifth month in a row in which buyer interest has dropped with all regions/countries of the UK now experiencing this trend.
New instructions to sell also continued to fall, with stock levels remaining at historic lows. Estate agents (on average) are holding just 34 residential properties on their books, and the pipeline appears to have deteriorated further, with the net balance for new market appraisals dropping to -20% (down from -3% in August).
As the market loses further momentum, sales have unsurprisingly fallen over the month, with the September figure the most negative reading since May 2020 and the number of sales having now fallen for five months in a row. Looking ahead, sales expectations over the next three months, and the twelve month sales predictions also remain negative.
While house prices have been being propped up by a lack of supply most recently, and the latest national net balance of +32% demonstrates that this has still been the case in the three months to September, the data is notably less positive than previously and continues the trend since April 2022 of an easing in house price growth (it was net balance of +78% five months ago). This trend is visible across the whole of the UK. Going forward, twelve-month price expectations have now turned slightly negative, with respondents citing the expected further substantial rises in mortgage rates as a factor putting pressure on the market over the year ahead. At the national level, a net balance of -18% of respondents now predict a slight dip in prices over the coming twelve months, down from a reading of +3% last time out.
In the lettings market, tenant demand picked-up alongside a fall in landlord instructions. As a result, near-term expectations point to further strong growth in rental prices over the coming three months.
Simon Rubinsohn, Chief Economist, commented: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market. Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.”
“How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.
“For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows. However, as lenders have been a lot more cautious through this cycle with high loan to value mortgage accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market.”
