RICS: Falling mortgage rates are providing respite for house prices

Property professionals appear less concerned about house price drops but values are still forecast to fall

house models next to coins
(Image credit: Getty Images)

Falling mortgage rates appear to be making property professionals more confident about the prospects for the housing market this year, the Royal Institution of Chartered Surveyors has claimed.

Average mortgage rates began falling from highs of 6% to 5% towards the end of 2023 and some deals have gone below 4% as inflation slowed.

This has fed into confidence among estate agents and surveyors responding to the December 2023 RICS UK Residential Survey.

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The professional body polls its agent and surveyor members each month to get a sense of the housing market mood, and generates a percentage balance figure based on whether indicators such as house prices and sales are rising or falling.

Its indicators were negative for much of last year, with members warning of a decline in sales and falling house prices.

The headline house price predictions for the next 12 months remained negative in December at -30%, but this was down compared with readings of -41% and -60% in November and October, respectively. 

This result suggests downward pressure on prices is diminishing, with the latest reading its least negative since November 2022, the RICS said.

Property professionals were less negative about prices over the next three months, with a reading of -13% in December compared with -23% in November. 

Other factors are also becoming less negative.

A return to a stable market?

High mortgage rates deterred many property buyers from the housing market for much of last year.

This led many sellers to put large discounts on property listings to attract interest, while the level of transactions dipped.

But as inflation has slowed and mortgage rates have fallen, activity appears to be improving.

The new buyer enquiries indicator registered a reading of -3% in December, up from the -13% result in November, approaching a flat reading, according to the report.

This is the fourth successive month where there was a reduction in negative buyer enquiry activity.

Similarly, the -6 % result recorded for newly agreed sales is the least negative figure since March 2022.

Near-term sales expectations over the next three months for December increased to +12%, with respondents predicting a recovery in residential sales volumes emerging during the whole of 2024, with the latest net balance climbing from +24% to +34%.

Sales are also progressing faster, RICS members said.

It now takes 18 weeks on average to complete a sale, compared with 20 weeks back in September 2023.

The report also highlights that landlord instructions continued to decline in December as property investors continue to avoid the buy-to-let market due to tax clampdowns.

RICS warned that this could hit supply and push rents up 4% this year.

“With 2023 proving to be a particularly challenging year for the UK housing market, it appears recent weeks have seen a little bit of respite emerge,” says Tarrant Parsons, senior economist at RICS.

“Supported by an easing in mortgage interest rates of late, buyer demand has now stabilised, and this is expected to translate into a slight recovery in residential sales volumes over the coming months. 

"Nevertheless, the lending climate is set to remain restrictive compared to much of the post global financial crisis era next year, meaning any uplift in activity is likely to be limited for the time being.”

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.