The housing market remains “generally weak”, says the Royal Institution of Chartered Surveyors (RICS) in its latest survey, with indicators on property demand, sales, new listings, and house prices all still in negative territory.
According to the report, even though the outlook for the housing market over the next twelve months has improved, in the short-term the market will remain subdued due to tighter lending conditions.
The Bank of England has hiked interest rates over the past year as it tries to bring inflation under control, tightening lending conditions across the economy.
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And it does not look as if the central bank’s battle is over just yet. The rate of inflation unexpectedly crept up in February, prompting the Bank to hike rates further to 4.25% – their highest level since 2008.
These rates have filtered through to the mortgage market. The average two-year fixed rate for a 75% LTV mortgage is 5.39%, while the five-year rate sits at 4.78% – over twice the 2% rates available at the start of 2022, Uswitch data shows.
Key indicators remain negative
The RICS Residential Market Survey net balance data ranges from -100 to +100 and measures the difference between the percentage of surveyors seeing rises and falls in markers such as house prices, new sales, and new buyer enquiries.
On the topic of house prices, the reading came in at -43%, suggesting more respondents are seeing price declines than rises. This is consistent with the latest figures from Nationwide, which said house prices fell for the seventh month in a row in March. Still, it’s an improvement on last month’s reading of -48%.
The balance for new buyer enquiries came in at -29% in March, “more or less unchanged” from last month’s -30% reading. All regions and countries posted a negative reading.
The balance for agreed sales fell to -31% in March from -25% in February. While it’s an improvement from the -43% figure reported in October after the mini-Budget chaos, the slip shows buyers remain unconvinced that now is a good time to buy a house.
Additionally, supply remains limited. The volume of fresh listings fell to -6% from -4% previously, and the number of appraisals also fell.
But there was some good news as well bad in the figures.
“Expectations of falling interest rates later in the year have persuaded agents that we could see sales pick up again within the next 12 months – which is the first time in over a year they’ve felt this positive about the future,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.
Sellers bear the brunt
Buyer demand has been slowing down for nearly a year now, meaning those who plan to sell “need to enter the market with clear-eyed pragmatism”, says Coles.
“There are so few properties coming to market that agents are over-valuing in order to win the business,” says Coles. “Homes then sit on the market without interest or viewings, forcing sellers to drop the price.”
Indeed, Zoopla recently reported sellers are accepting discounts of up to £14,000 on their properties.
The risk is overpriced homes might risk missing the usually-active Spring season, which could lead to further price drops down the line.
Despite the positive outlook for the longer-term, “on balance, it’s difficult to see that the market will avoid more weakness in the coming months”, says Coles.
Rental demand continues to grow
The RICS survey also said tenant demand reached a five-month high, with a net balance of +46%, but new landlord instructions remain at a balance of -21%.
The supply vs demand imbalance in the rental market has pushed rents to a record high, making it even harder for prospective buyers to save for a home.
Nearly +60% of respondents expect rents to increase further. Surveyors believe increased legislation, such as the government’s proposed new energy efficiency requirements, is what is prompting landlords to exit the market.
Buy-to-let landlords have been increasingly giving up on the sector as mortgage rates increase and eat into rental yields.
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