The May 2024 RICS UK Residential Survey indicates a slight downturn in the sales market, with most indicators showing some deterioration. This setback appears linked to reduced expectations regarding monetary policy loosening by the Bank of England in the latter half of the year. Despite this, respondents anticipate a modest recovery in residential sales volumes in the coming months.
The aggregate new buyer enquiries series saw a net balance reading of -8%, down from -1% previously, suggesting a modest decline in demand. This marks the softest reading for this metric since November of last year. Regionally, the South East and South West of England experienced the most significant declines in buyer enquiries, with net balances of -27% and -23%, respectively. Additionally, the number of sales agreed fell, with a net balance reading of -13% in May, down from +4% last time.
Looking ahead, near-term expectations suggest a modest pickup in sales volumes over the next three months, with a net balance of +6%. The twelve-month outlook remains positive, with a net balance of +43% of survey participants anticipating increased sales activity, up from +33% in April.
The flow of new sales instructions continues to rise, with a net balance of +16% in May, marking six consecutive months of improvement in fresh instructions. Similarly, the number of market appraisals has increased, with a net balance of +17% reporting higher appraisals than a year ago, the fifth consecutive positive reading.
House prices, however, retreated in May, posting a net balance of -17%, down from -7% in the previous survey. This suggests a slight decline in house prices, the most negative return since January. While prices fell in most regions of England, Scotland and Northern Ireland continued to see upward trends.
Near-term expectations for national house prices indicate some downward pressure over the next three months, with a net balance of -12%, though this is only marginally negative. Longer-term, contributors expect house prices to rise over the next twelve months, with a net balance of +41%, the highest reading since April 2022.
In the lettings market, tenant demand regained momentum, with the May net balance climbing to +35%, up from +10% previously. Landlord instructions were more or less flat, with a net balance of -3%, marking the first neutral territory reading since August 2022. Near-term expectations point to continued rental price increases, although the pace is expected to be more modest than the average +53% reported throughout 2023.
RICS chief executive, Justin Young, said: “Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos. While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options. This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.
“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation. With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.
“With higher interest rates continuing to hamper first-time buyers, politicians are looking to win support from this group of buyers –as the Conservatives have done with Help to Buy 2.0 and Labour with the Freedom to Buy promise.
“Many millions of voters are feeling both cost of living, and market impacts; the political parties see this and are trying to entice the electorate with proposals in their manifestos this week.”
Tarrant Parsons, RICS senior economist, added: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”
Reaction
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“On sales, we saw very little pause in the recent increase of market activity at the time of, and immediately after, the election announcement. Our buyers and sellers were telling us they regarded the outcome as a foregone conclusion and saw little difference in the two main parties’ housing policies.
“However, reality seems to have ‘kicked in’ over the past few weeks, not so much due to the likely election result but lingering doubts about the strength of the economy and the pace of the expected drop in mortgage rates.
“Buyers are broadly in control so prices are dropping a little and transactions lengthening but keenly-priced homes are still attracting the most attention.
“For lettings, we might have expected the recent fall in letting instructions prompted by more landlords leaving the sector partly in response to regulatory issues, to support higher rents but the reverse has been true. The quantity and quality of tenants has reduced and rents are softening as tenants are refusing to pay more while cost of living worries remain.”
Tomer Aboody, director of property lender MT Finance:
“With both Conservative and Labour parties discussing the housing market and addressing the shortage of homes, a review of stamp duty along side some changes to assist landlords is needed.
“Over the past few years, landlords have been hit multiple times by tax and regulatory changes which in turn has meant that rental properties have either been sold or the cost of renting has increased significantly to cover these rising costs.
“A reduction in stamp duty is needed along with some restructure of tax which landlords are paying, so that more rental properties come to the market which in turn will ensure rental prices are manageable.
“Hopefully, along with the changes, we can see some reductions in interest rates which will encourage further purchases, as affordability will be more realistic.”
