The housing market is showing further signs of stabilisation as buyer demand and agreed sales continue to recover from recent lows, the latest RICS Residential Market Survey reveals.
New buyer enquiries recorded a net balance of -19% in August, the least negative reading since January and the fifth consecutive monthly improvement.
Agreed sales also strengthened, with the net balance improving to -17% – its strongest reading since February and well ahead of the -38% recorded in April.
However, activity remains subdued and RICS warns that uncertainty surrounding interest rates and the October Budget could put a fragile recovery under renewed pressure.
SALES OUTLOOK IMPROVES
Expectations for sales over the next three months improved sharply, with the net balance moving from -13% in July to -3% in August.
Looking 12 months ahead, a net balance of +6% of respondents expect sales volumes to increase, up from +3% previously.
House prices remain under pressure, although the headline price balance improved marginally from -29% to -28%.
Regional differences remain pronounced. London continues to record a more negative price balance than the national average, while Northern Ireland reports rising values and the North West maintains modest price growth.
The supply of homes coming to market is broadly unchanged, with the new instructions balance at zero compared with -2% in July.
RENT EXPECTATIONS RISE
Conditions remain tighter in the lettings market, where rising tenant demand is being accompanied by falling landlord instructions.
Tenant demand records a net balance of +18%, while landlord instructions remain in negative territory at -14%.
Expectations for further rental growth have also strengthened. A net balance of +44% of respondents now expects rents to increase over the next three months, up from +33% in July.
Over the coming 12 months, respondents expect rents to rise by around 3% on average.
RECOVERY REMAINS FRAGILE
Tarrant Parsons (main picture, inset), Head of Market Research and Analysis at RICS, says: “August’s results show a market that is gradually finding its footing, with key activity indicators having become progressively less negative over recent months. That said, any potential recovery remains fragile and faces two significant near-term tests.
“The Bank of England’s increasingly hawkish tone, on the back of renewed volatility in global energy markets, is a reminder that the borrowing cost outlook could yet deteriorate further.”
He adds: “And with the October Budget approaching, speculation over potential changes to property taxation is adding another source of caution for both buyers and sellers.
“As such, headwinds over the shorter term remain pronounced, even though recent market trends have appeared more stable.”
‘DEMAND HAS STABILISED’
Tom Bill, Head of UK Residential Research at Knight Frank, says: “After a spring slowdown driven by higher mortgage rates, demand has stabilised as borrowing costs reset and the government avoids fuelling the sort of pre-Budget speculation that has put buyers off in recent years.
“Prices are largely moving sideways but activity could be sustained through the autumn provided the Budget doesn’t reignite a mood of uncertainty.
“Rising rental values reflect one of the unintended consequences of the Renters Rights Act.
“Landlords are setting higher asking rents to reflect the greater risks they face around void periods and rent collection, against the backdrop of lower supply.”
COST OF LIVING WORRIES
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “In our offices, a modest uptick in demand has coincided with holiday returnees re-starting property searches, albeit not in the same volume as this time last year.
“Buyers and sellers are finding it difficult to shrug off worries about the impact of the protracted war in Iran on the cost of living and mortgage rates in particular. Speculation about the impact of the Budget on taxes is adding to buyer caution”
He adds: “Continuing uncertainty in the sales market has resulted in more lettings activity with tenants taking advantage of their new ability to end fixed-term constraints under the Renters’ Rights Act.
“Rents have held firm, supported by supply shortages, especially of larger flats and family houses, as exiting landlords are not being replaced fast enough so standards are slipping too.”
