The UK housing market improved in December, with buyer demand stabilising and sales activity picking up but there remains a shortage of homes to rent, the Royal Institution of Chartered Surveyors (RICS) says.
Its latest UK Residential Survey, which covers the lettings and sales markets, shows that tenant demand increased in December, with a net balance of +17% of survey participants reporting a rise.
However, this was lower than in previous months, as demand growth slowed down.
Shortage of properties to rent
Landlord instructions remained scarce, as they have been for the past year, leading to a shortage of properties to rent.
This pushed up rental prices, with +50% of respondents expecting rents to rise over the next three months, and a projected 4% increase in rent prices in 2024.
Over the next five years, rent growth is expected to average 5% per year.
‘Challenging year for the UK housing market’
Tarrant Parsons, the senior economist at RICS, said: “With 2023 proving to be a particularly challenging year for the UK housing market, it appears recent weeks have seen a little bit of respite emerge.
“Supported by an easing in mortgage interest rates of late, buyer demand has now stabilised, and this is expected to translate into a slight recovery in residential sales volumes over the coming months.
“Nevertheless, the lending climate is set to remain restrictive compared to much of the post global financial crisis era next year, meaning any uplift in activity is likely to be limited for the time being.”
Sales market showed signs of recovery
RICS says that the sales market showed signs of recovery, as the trend towards lower mortgage rates continued.
Near-term sales expectations improved slightly, while the longer-term outlook suggested a more stable market.
The new buyer enquiries indicator was -3% in December, up from -13% in November, indicating a near-flat reading.
This was the fourth consecutive month of reduced negative buyer enquiry activity, and the first time since April 2022 that it moved into neutral territory (between -5% and +5%).
The newly agreed sales indicator, which measures the number of sales agreed, was -6% in December, the least negative figure since March 2022.
‘Buyers are definitely feeling more confident’
Tomer Aboody, a director of property lender MT Finance, said: “As lenders look to reduce mortgage rates in order to increase lending volumes, buyers are definitely feeling more confident in their ability to buy, both due to affordability but also with the possibility of more stock coming onto the market.
“2023 was an incredibly flat year for sales, with multiple factors affecting the market, from interest rates rises and high inflation to low stock levels.
“Better sentiment is expected with encouraging prospects for the year ahead.”
Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said: “Although inflation may have picked up, the downward trend has prompted a reduction in mortgage rates and lender appetite which in turn has helped to increase activity.
“Buyers and sellers are gaining confidence from an expectation that the worst of the market may be behind us, supported by still-strong employment numbers.
“Looking forward, we don’t expect any massive changes, but certainly firming prices and more sales agreed than we perhaps dared to expect only a few months ago.”
