RICS: Property market confidence is rising amid hopes of rate cuts

Buyer and seller demand is finally improving and house prices may actually rise this year, research from the Royal Institution of Chartered Surveyors (RICS) suggests.

The housing market slumped for much of last year, as high mortgage rates and sticky inflation weighed on demand.

RICS regularly 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.

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The figures were negative for much of last year but are starting to turn positive.

Sales volumes are on the rise, influenced by expectations of interest rate cuts by the Bank of England, RICS said, but a net balance of -18% said house prices are currently falling.

Looking ahead, near-term price expectations have now turned more or less flat at the national level, RICS said, with the net balance moving to -2% from -12% previously.

On a 12-month view, a net balance of +18% of respondents now anticipate a mild increase in house prices, the strongest reading since July 2022. 

When disaggregated, with the exception of East Anglia and the West Midlands, where net balances stand at -12% and -13%, all other parts of the UK are now expected to see some uplift in house prices over the year to come.

Sarah Coles, head of personal finance at Hargreaves Lansdown highlights that this is thee first glimpse of buyer enthusiasm we’ve seen in this report for ages, and it’s enormously welcome. 

“Miserable levels of demand have been a permanent feature for the best part of two years, so this is a real departure. More positive sentiment has helped to boost the number of agreed sales, which is music to the ears of those who have been struggling to shift their home,” she says.

“It has inspired a good degree of optimism among estate agents, who are now more convinced that sales are set to pick up over the coming months. They’re hopeful that falling mortgage rates will fuel growth in the property market, and the worst may be over. They’re also expecting modest price rises this year.”

However, Coles adds that estate agents are optimistic individuals generally when it comes to house prices, so we shouldn’t set too much store by this. 

“The property market is still dealing with a tough economic backdrop, and higher prices at a time of elevated mortgage rates are going to push property out of the reach of many would-be-buyers,” she says.

“If economic growth remains stagnant, or falls, we could see weakness in the jobs market, which has been underpinning the property market. We may not have seen the back of the market’s woes, and house prices are still expected to fall this year.”

An improving housing market

Falling mortgage rates have boosted buyer confidence in recent weeks.

House price reports from Rightmove and Zoopla have reported increased demand while the latest Halifax house price index showed annual growth hit a 12-month high in January.

This is being reflected in the RICS data.

Nationally, new buyer enquiries were at +7% in January, up from -3% in December, according to the RICS report.

It is the strongest demand since February 2022. 

Additionally, the percentage balance measure for agreed sales flipped from -5% to +5%, while  respondents saw sales picking up over the next three months, with +14% on balance stating that they believe rises are coming. 

Longer-term, +44% said they believe that sales volumes will increase over the next twelve months.

“The UK housing market has seen a continued improvement in buyer activity through the early part of the year, supported by the recent easing in mortgage interest rates,” says RICS senior economist Tarrant Parsons.

“Although sales volumes through much of the year ahead are likely to remain relatively subdued compared to the longer-term average, the outlook has now turned modestly brighter on a consistent basis over the past few survey reports.”

He adds that mortgage affordability is still a significant challenge and any further unwelcome surprises with regards to inflation may still cause interest rate expectations to be revised. 

“That would then pose a significant risk to any prospective recovery in the months ahead, even if the current prognosis is for the market to see a further pick-up in activity levels,” adds Parsons.

Will house prices fall this year?

Many forecasts still expect price drops this year due to mortgage rates being higher than what many current and new borrowers are used to.

Zoopla has highlighted that sellers are putting high discounts on properties to attract viewings and is predicting drops of 2%.

Halifax is predicting falls of between 2% and 4% despite its own index showing rising prices.

Some commentators have revised their forecasts recently though.

Property brand Knight Frank had previously predicted a 4% drop in prices but now believes they will actually rise by 3% this year.

“Leading indicators of demand have turned more positive and we expect the number of mortgage approvals and exchanges to catch up this spring," says Tom Bill, head of UK residential research for Knight Frank.

"As inflation falls faster than expected, the improved outlook for rates on money markets means lenders have dropped their prices, irrespective of how cautious the Bank of England is sounding. We expect a 3% rise in UK house prices this year despite the presence of some inflationary pressures and rising political volatility.”