RICS: UK housing market starts to lose momentum

The UK housing market faces uncertainty over economic and political issues and is starting to lose momentum, according to the latest Royal Institution of Chartered Surveyors (RICS) survey.

While house prices rose overall last month, buyer demand weakened. The survey, which polls estate agents and other property professionals, revealed a net balance reading of -14% for buyer demand in February, down from -1% in January. It marks the weakest reading since November 2023.

RICS said that the upcoming changes to the stamp duty thresholds are impacting decision-making, which is contributing to the slowdown.

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From 1 April, stamp duty will be due on homes costing more than £125,000 (£300,000 for first-time buyers). Currently, the tax is only due on properties worth more than £250,000, or £425,000 for first-time buyers.

According to Coventry Building Society, the stamp duty hike means that someone buying an average-priced home in England will have to fork out an extra £2,500 in tax.

Geopolitical and international economic uncertainties are also leading to a less favourable climate for the housing sector.

Simon Rubinson, RICS chief economist, comments: “The UK housing market appears to be losing some momentum as the expiry of the temporary increase in stamp duty thresholds approaches. Some concerns are also being expressed by respondents about the re-emergence of inflationary pressures and the more uncertain geopolitical environment.

“That said, looking beyond the next few months, sales activity is seen as likely to resume an upward trend with prices also moving higher.”

UK inflation rose by more than expected in January to 3%, up from 2.5% in December. US president Donald Trump’s tariffs are also causing concern on both sides of the Atlantic.

Tom Bill, head of UK residential research at the estate agency Knight Frank, says there has been “a mood of risk aversion in global financial markets and among UK homebuyers in recent weeks”.

He adds: “Trump’s erratic trade policy and increases in German defence spending are two reasons beyond the control of the government that most UK mortgage rates remain above 4%, which is keeping demand in check.”

The average two-year fixed residential mortgage rate is 5.35%, according to Moneyfacts. The average five-year rate is 5.19%.

What’s going on in the UK housing market?

The RICS survey shows that house prices at a national level continue to rise overall, albeit at a subdued rate.

The latest net balance for house price growth came in at +11%, which remains consistent with a subtle upturn in prices. However, this has moderated in each of the last two months, easing from +25% and +21% in December and January, respectively.

House price indices also highlight a slowing property market. According to mortgage lender Halifax, house prices fell by 0.1% on a monthly basis in February, after growing 0.6% in January.

RICS says that while respondents welcomed the recent interest rate cut by the Bank of England (on 6 February), “there is an appetite for the Bank to go further”.

Tomer Aboody, director of specialist lender MT Finance, notes: "Although we have seen a confident market over the past 12 months as buyers make their move due to a better interest rate environment and lower inflation, both buyers and sellers are hoping for further cuts in coming months.

“While sales volumes are up, they are still well below historical figures and some intervention will be needed in order to inject more life into the housing market.”

Looking to the future, most RICS respondents believe that house prices will rise over the next 12 months. Indeed, the net balance for the year-ahead price expectations series sits at +47%, broadly in line with the average reading posted over the past six months.

Rubinson comments: “A key support for the market continues to be the increased flow of existing stock becoming available, giving property buyers a greater choice of options. However, leading indicators around new build remain subdued for now.”

According to Bill at Knight Frank, there is also uncertainty around what measures the government may announce in this month’s Spring Statement, as well as the inflationary impact of any policies.

He adds: “Markets still expect two Bank of England rate cuts in 2025 and we still believe there will be single-digit house price growth, but some caution is understandable.”

What’s happening in the rental market?

Lettings demand has reduced again, according to RICS, but the availability of rental properties has dropped at a faster rate, leading to more rent price increases.

Tenant demand recorded a figure slightly below zero for the fourth month in a row, returning a net balance of -4% in February. RICS says this points to a broadly stagnant trend rather than an abrupt downturn.

Alongside this, landlord instructions continue to show negative momentum, registering a net balance of -22%.

Despite the subdued demand backdrop, a net balance of +34% of survey participants foresee rental prices rising over the coming three months.

Rubinson comments: “Despite a flatter trend in demand for private rental properties, the key RICS metric capturing rental expectations is still pointing to further increases demonstrating that the challenge around supply spans all tenures.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, adds: "Affordability is still acting as a check on rent rises but, lack of supply particularly of smaller flats and houses, has certainly prevented more substantial reductions in activity over the past few weeks.”