High mortgage rates are weighing on the property market, suggesting the sector is facing its bleakest outlook since 2009, according to the latest Royal Institution of Chartered Surveyors (RICS) survey.
The RICS Residential Market Survey measures the percentage of surveyors that are reporting house price increases versus declines.
And its latest survey recorded a reading of -53% in July from -48% in June - its lowest level since the financial crisis.
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Additionally -44% of respondents noted a decline in agreed sales in July, up from -36% the month before – that’s the weakest reading for sales since the early stages of the pandemic.
New buyer enquiries remained negative in July at -45%, up marginally from -46% the month before, which “continues to signal a sharp downturn in buyer demand following the escalation in mortgage interest rates”.
Short term expectations remain bleak
Respondents are also pessimistic about sales expectations, which have “turned increasingly subdued of late”.
“This data echoes recent reports from Nationwide and Halifax suggesting that the Bank of England’s (BoEs) aggressive stream of 14 consecutive rate hikes and the consequent surge in mortgage costs are sharply weighing on the housing market,” says Victoria Scholar, head of investment at interactive investor.
Nationwide reported house prices fell 3.5% annually in June, while Halifax data showed house prices fell for the fourth month in a row in July.
“The reduction in affordability of borrowing is prompting more and more would-be buyers to turn to the rental market instead with increased demand leading to a jump in rents.”
Some lenders have cut their rates as of late, but mortgage rates remain around the 6% mark, far higher than the 2% they were averaging early 2021.
They are expected to climb further as providers price in further base rate increases by the central bank.
National price expectations remain negative for the three and twelve month time horizons: -49% of respondents to the RICS survey expect house prices will fall further.
Rental demand on the rise
The RICS survey also looks at the rental market.
Here it recorded tenant demand rising in the three months to July, with +54% of respondents citing an increase – the strongest quarterly pick up in rental demand since early 2022.
But landlord instructions fell again, suggesting more landlords are leaving the market. The supply vs demand imbalance has resulted to a sharp increase in rents, with +63% of respondents saying they expect rental prices will continue to rise over the next three months, up from +55% the previous quarter.
“Landlords have left the sector in recent years due to extra red tape and costs as they became a politically expedient target for the government,” says Tom Bill, head of UK residential research at Knight Frank.
“The unintended consequence has been more financial pain for tenants as the supply of rental properties falls and rents rise.”
Indeed, landlords are facing a collective £18bn bill to make their properties more energy efficient.
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