Some dark clouds are beginning to emerge on the horizon for the UK property market. While house prices seem to have held up quite well over the past six months, despite surging mortgage costs, the market began to slow substantially in June according to the latest data from The Royal Institution of Chartered Surveyors (RICS).
The RICS polls its members monthly on the state of the housing market. In its latest survey, a net balance of -45 reported a fall in new buyer enquiries last month, down from -20 in May.
The survey gives us a good indication of what could happen in the market over the next six months - rather than what has happened over the past six months, as is the case with most other house price indexes.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The RICS index represents the difference in percentage points between members seeing rises and falls in new buyer enquiries. Other indexes measure completed transactions, which might have been in process for months.
Mortgage woes drive buyer retreat
The latest reading for June is the most negative figure since a -51 in October last year, following the turbulence caused by Lizz Truss’s “mini-budget”.
Admit spiking mortgage rates - the average two-year fixed rate mortgage is now around 6.66% according to Moneyfacts, a level not seen since August 2008 - RICS expects buyer demand to remain subdued.
"The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key RICS metrics regarding buyer enquiries, sales and prices which have all retreated over the past month,” said Simon Rubinsohn, chief economist at RICS.
“Inevitably in this environment, activity levels are likely to remain relatively subdued. However, an important message coming back from RICS agents is around ensuring prices are set with an eye on the market conditions of today, rather than the recent past; when this is done, sales are taking place."
RICS’ measure of agreed sales also slumped, falling to -34 in June, below the level of -8 recorded in May. Meanwhile, its house price balance, declined to -46 last month from -30 in May. This figure reflects the difference in the percentage of surveyors seeing rises and falls in house prices.
Commenting on these figures, Chris Druce, senior research analyst at Knight Frank, said, “June’s RICS survey shows that buyers were left shaken after lenders pushed up borrowing costs further in anticipation of the Bank of England hiking the base rate to 5%.”
“More pain will enter the system in the coming months as another tranche of fixed-term mortgages are renewed at higher rates, and we can expect downwards pressure on pricing. Sentiment is ultimately unlikely to improve until we have surety about how high borrowing costs will go,” he added.
Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has freelanced as a financial journalist for 10 years, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
Nvidia becomes the fourth biggest company in the world - should you invest?
Chipmaker Nvidia is riding the AI wave, and has overtaken Alphabet and Amazon in terms of market capitalisation. Have new investors missed the boat, or will the share price soar higher?
By Ruth Emery Published
Savings market heats up as providers boost rates - should you switch now for a better return?
In a surprising twist, more and more banks are now hiking their savings rates. Is it a good time to move your money and grab a better rate?
By Vaishali Varu Published