New government's housing focus and recent base rate cut boost market sentiment
The UK’s residential property market showed signs of slight improvement in July, according to the Royal Institution of Chartered Surveyors (RICS).
Average mortgage rates edged lower as the market correctly anticipated a rate cut by the Bank of England, boosting sentiment in the sector. However, the full impact of the central bank's decision and recent government announcements on housing reform will not be clear until next month's report, RICS said.
New buyer enquiries rose slightly, with a net balance of +2%, up from -6% in June. This marks the first positive reading in four months, indicating a modest increase in buyer interest.
The latest RICS UK Residential Property Survey also indicated signs of improvement for agreed sales, although the net balance remained in negative territory at -2%. This is an improvement from -13% in May and -6% in June, continuing a positive trend.
A net balance of +30% of respondents predicted rising sales over the next three months, the most optimistic outlook since January 2020. Long-term sentiment was also positive, with +45% of respondents expecting sales to increase over the next 12 months, up from +40% in the previous survey.
House prices, however, continued to decline on a UK-wide level, with a net balance of -19%. All English regions reported negative sentiment towards prices, with East Anglia and Yorkshire and the Humber showing the weakest readings. In contrast, Scotland and Northern Ireland saw price increases. Looking ahead, +46% of respondents expect prices to be higher in a year’s time.
In the rental market, the gap between demand and supply continued to widen. Demand rose modestly, with a net balance of +18%, while landlord instructions fell to a net balance of -16%. Although the rate of this gap’s growth slowed slightly, the trend suggests further rental price increases are likely.
“The new government’s focus on boosting housing development, alongside the recent quarter point base rate cut, does appear to have shifted the mood music in the sales market, with projections for both near and medium activity picking up,” said Simon Rubinsohn (pictured left), chief economist at RICS.
“Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform, and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector.”
Jeremy Leaf (pictured right), north London estate agent and a former RICS residential chairman, agreed that there was noticeably more optimism about prospects for the housing market now that election uncertainties have passed, and mortgage rates seem to be heading south.
“However, with so many buyers and sellers on holiday, demand and the pace of transactions has only picked up a little, and we expect a stronger bounce-back in September,” Leaf added. “We have seen renewed interest from small builders and investors too, keen to take advantage of what they believe will be a stronger sales performance next year.”
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