The UK property market brightened slightly last month, with growing optimism that house prices will rise and sales will perk up, according to the Royal Institution of Chartered Surveyors (RICS).
Its latest survey reveals that while new enquiries and sales remained steady in July, more estate agents and surveyors expect market activity to increase in the months ahead. Sales expectations are now at their strongest since January 2020. They also think house prices will rise over the next 12 months.
The improved sentiment is partly due to falling mortgage rates. Average mortgage rates dropped last month as the market correctly anticipated a rate cut by the Bank of England. Yesterday (7 August), Halifax reported that house prices jumped 0.8% last month, with the lender expecting more house price growth this year. Zoopla also said last week that the property market is heating up, with buyers making higher offers and more sales agreed.
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However, the picture is not so rosy for the rental market. Landlord numbers fell again, while the number of tenants keeps rising – and RICS members expect rents to increase.
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Optimism grows in UK property market
New buyer enquiries picked up a little in July, with more buyers looking to buy a home – a result of +2%, up from -6% last month, according to the RICS survey. Whilst still broadly flat, it is the first time in four months that there have been positive numbers of buyers looking to enter the market.
The number of agreed sales also saw an improvement. While this month's -2% (net balance) result is still inside negative territory, it continues the positive trajectory since it scored -13% and -6% in May and June, respectively.
Looking ahead, a net balance of +30% of respondents predicts that sales will rise over the next three months, which is the most positive sentiment since January 2020.
And while RICS house price indicators continue to drop in most UK regions (especially East Anglia and Yorkshire & the Humber), respondents expect those falls will soon turn into increases. They think prices will be higher in a year's time. Last week, Nationwide said UK house price growth hit a 19-month high in July.
So, what’s behind this improved positivity in the housing market? According to RICS, lower mortgage costs are a big factor, although it adds that the full impact of the interest rate cut and the government's announcements on housing reform will not be evident until next month's report.
“The new government’s focus on boosting housing development alongside the recent quarter-point base rate cut does appear to have shifted the mood music in the sales market, with projections for both near and medium activity picking up,” comments Simon Rubinsohn, chief economist at RICS.
“Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, adds that estate agents “have faith that interest rate cuts will breathe new life into a market that grew stuffy and stagnant in the early summer”.
Back in May, the RICS survey revealed that the UK housing market saw a dip in confidence, partly due to a rise in mortgage rates. Meanwhile, house prices were broadly flat from April to June this year.
What’s happening with the rental market?
In the rental market, the gap between demand and supply continued to widen, suggesting that we could see more rent increases.
Many buy-to-let landlords are looking to exit the market, while the number of tenants keeps rising.
Rubinsohn notes: “The difficulties in the lettings market remain as intense as ever with little prospect of any relief in sight. Demand is continuing to run ahead of supply with many respondents to the RICS survey noting that landlords are looking to reduce holdings in the face of an increasingly hostile environment for investment in the sector.”
Coles says that the prospects for renters could get even tougher in the coming months if buy-to-let landlords take fright at rumours of a possible capital gains tax hike.
“This could encourage more landlords to sell up before any potential change comes in, cutting the number of rental properties again," she warns.
