Confidence in the UK housing market remains fragile as geopolitical tensions and economic uncertainty weigh on buyer sentiment, according to the latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey.
The February survey suggests the market is still struggling to gain momentum despite some early signs of activity at the start of the year.
New buyer enquiries weakened further during the month, with the headline net balance falling to -26%, compared with -15% in January. Agreed sales also remained subdued, posting a net balance of -12%, while near-term sales expectations slipped slightly to -2%.
Despite the softer short-term outlook, surveyors remain cautiously optimistic about the year ahead, with a net balance of +17% expecting sales volumes to rise over the next 12 months.
PRICES BROADLY FLAT
House prices were broadly flat nationally in February. The headline price net balance registered -12%, only marginally weaker than the previous month.
Regional differences remain significant, however. London (-40%), the South East (-24%) and East Anglia (-26%) continue to see the greatest downward pressure on prices, while Northern Ireland, Scotland and the North West of England are reporting firmer trends.
Short-term price expectations also weakened, with the near-term balance dropping to -18% from -6% in January. Over a 12-month horizon, sentiment remains more positive, with a net balance of +33% expecting prices to edge higher, although at a slower pace than previously anticipated.
Supply levels remain broadly unchanged, with new instructions posting a net balance of +2%. Market appraisals were also largely stable, suggesting little immediate shift in the pipeline of new listings.
In the lettings market, tenant demand remained broadly stable over the three months to February at +2%. However, landlord instructions remain significantly negative at -27%, indicating an ongoing shortage of rental stock. As a result, a net balance of +20% of surveyors expect rents to rise over the next three months.
VOLATILE MARKET
Tarrant Parsons, RICS Head of Market Research & Analytics, says: “February’s survey highlights renewed volatility in the market. While activity indicators at the start of the year suggested a tentative improvement, the deterioration in the geopolitical backdrop has clearly weighed on confidence.
“The recent rise in oil and energy prices has also increased the likelihood that mortgage rates will remain higher for longer.
“As a result, near-term expectations have softened. Although the twelve-month outlook remains positive overall, maintaining that trajectory will depend on the recent spike in inflationary pressures easing in the months ahead.”
MIDDLE EAST WORRIES
Tom Bill, head of UK residential research at Knight Frank, says: “Demand had been recovering after the uncertainty caused by November’s Budget, but the Middle East conflict will dampen sentiment during a traditionally busy period for housing transactions.
“People will still need to move but geopolitical instability will increase the mood of hesitation while rising mortgage rates due to energy price spikes will curb spending power.
“That said, a weak labour market is one reason that the underlying case for multiple rate cuts this year still stands and the longer-term impact on buyers and sellers hinges on how long the disruption lasts.”
CAUTIOUS STATE
Jeremy Leaf, north London estate agent and a former RICS residential chairman, adds: “Interestingly, this survey, like most others, does not reflect the particular geopolitical uncertainties prevailing over the past week or so.
“Even before that, it is clear the market was in a cautious state. Confidence has definitely improved this year compared with the end of last but remains relatively fragile and won’t be helped by worries that inflation and interest rates may not have peaked after all, as was expected only a few weeks ago.
“On the ground, we have seen no sharp reactions one way or the other with all says agreed proceeding other than for non-property related market reasons.”
RENTERS’ RIGHTS ACT
And he adds: “Now that the Renters’ Rights Act is almost upon us, many landlords are trying to sell when tenancies end or come up for renewal.
“This has resulted in lack of choice for tenants, thus keeping rents at a higher level than might have been expected due to continuing cost-of-living concerns.
“However, turmoil in the Middle East may make some tenants think twice before committing themselves until the picture is clearer.”
