RICS: Property market recovery falters

It has been a year of two parts for the UK housing market with stamp duty changes in April causing a rush in the first three months of the year, followed by a period of inactivity in the immediate aftermath.

Early signs of a recovery had been emerging but estate agents say activity dipped again in July, according to the latest sentiment survey from the Royal Institution of Chartered Surveyors (RICS).

New buyer enquiries, agreed sales and house prices all fell during the month, according to the property experts surveyed.

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The RICS report generates net balance scores between -100 and +100 in response to a series of questions, including: “How have average prices changed over the past three months (down/same/up)?”

The number of respondents reporting a fall is deducted from the number reporting a rise. If 30% reported a rise and 5% reported a fall, the net balance figure would be +25%.

In July, a net balance of -13% of respondents said house prices fell over the past three months – a weakening in sentiment compared to June when the figure was -7%.

It is perhaps unsurprising given the net balance score for new buyer enquiries fell from +4% to -6%, while agreed sales fell from -4% to -16%.

“The flatter tone… highlights ongoing challenges facing the housing market. Although interest rates were lowered at the latest Bank of England meeting, the split vote has raised doubts about both the timing and extent of further reductions,” said Simon Rubinsohn, chief economist at RICS.

“Meanwhile, uncertainty about the potential contents of the chancellor’s Autumn Budget is also raising some concerns. Against this backdrop, respondents continue to report that the market remains particularly price sensitive at the present time.”

House prices: Nationwide and Halifax tell a more positive story

While sentiment is clearly weak among RICS respondents, recent house price data from lenders paints a stronger picture.

Halifax said house prices increased by 0.4% in July – the largest monthly increase recorded by the bank so far this year.

Nationwide reported a larger increase of 0.6% during the month, bringing its estimate of the average UK property to £272,664. This is 2.4% higher than a year ago.

Nationwide’s chief economist Robert Gardner argues that activity is holding up fairly well. Citing the latest Bank of England data, he points out that “64,200 mortgages for house purchases were approved in June, broadly in line with the pre-pandemic average, despite the changed interest rate environment”.

Separate data from Zoopla also points to a busy July, in contrast to the RICS report. The property site said buyer demand was up 11% compared to a year ago, while agreed sales were up 8%, defying the usual summer slump.

Changes to mortgage affordability tests could be a catalyst. Lenders recently loosened the rules following encouragement from the regulator – an effort to help more buyers onto the property ladder.

“Those using a mortgage can borrow up to 20% more than they could three months ago, with no change to their income or the mortgage rate they’re offered,” said Richard Donnell, Zoopla’s executive director of research.

Will house prices rise going forward?

While sentiment weakened in July among RICS survey respondents, they were more positive on the longer-term outlook. A net balance of +8% of respondents expect sales activity to pick up over the next 12 months.

This won’t necessarily translate into a significant increase in prices. Although +19% of RICS respondents expect house prices to rise over the next year, this is the lowest reading for this measure since January 2024.

Other property experts agree that house price growth will be muted in the near term. Estate agency Savills recently downgraded its 2025 forecast from 4% to 1% for the mainstream UK property market.

Rightmove and Zoopla have both halved their forecasts in recent weeks too. Rightmove now thinks prices will grow by 2% overall in 2025, while Zoopla is expecting just 1%.

Naturally, there are regional disparities with prices rising more rapidly in the north than the south, where homes are more expensive and affordability is stretched.

A glut of supply is partly responsible for recent downgrades to property market forecasts. The number of homes on the market is at a decade high, according to Rightmove, meaning sellers have to be realistic when setting a price.

“Discerning buyers can quickly spot when a home looks overpriced compared to the many others that may be available in their area,” said Colleen Babcock, property expert at Rightmove.

“It appears that more new sellers are conscious of this and are responding to this high-supply market with stand-out pricing to entice buyers and get their home sold.”