House prices also decline
New buyer enquiries have dipped to its lowest level in six months, reflecting a general softening in sales market momentum, the Royal Institution of Chartered Surveyors (RICS) has reported.
The May 2024 RICS UK Residential Survey highlighted the slight setback for the sales market, with most indicators deteriorating.
The downturn is linked to scaled-back expectations for monetary policy easing by the Bank of England in the latter half of the year. However, respondents still anticipate a modest recovery in residential sales volumes in the coming months.
The net balance for new buyer enquiries fell to -8% from -1%, reflecting a modest drop in demand, the softest reading since November last year. The most noticeable decline in buyer enquiries occurred in the South East and South West of England, with net balances of -27% and -23%, respectively.
The latest RICS survey also revealed a decrease in sales agreed, with a net balance of -13%, down from +4% in the previous month. Despite this, near-term expectations indicate a modest increase in sales volumes over the next three months, with a net balance of +6%. The outlook for the next 12 months remains positive, with 43% of survey participants expecting an uplift in sales activity, up from 33% in April.
New listings continue to rise, with a net balance of +16% in May, marking six consecutive months of improvement. Additionally, 17% of respondents reported an increase in market appraisals compared to a year ago, the fifth consecutive month of growth in this metric.
House prices saw a decline in May, with a net balance of -17%, compared to -7% in April. Prices fell slightly in most regions of England, but Scotland and Northern Ireland continued to see price increases.
Near-term expectations suggest further downward pressure on prices, with a net balance of -12%. However, longer-term expectations are positive, with a net balance of +41% predicting higher house prices over the next twelve months, the highest reading since April 2022.
“On sales, we saw very little pause in the recent increase of market activity at the time of, and immediately after, the election announcement,” said Jeremy Leaf (pictured left), north London estate agent and a former RICS residential chairman. “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 in 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 most attention.”
Meanwhile, in the lettings market, RICS reported that tenant demand increased, with the net balance rising to +35% from +10%. Landlord instructions were flat at -3%, the first neutral reading since August 2022.
Rental prices are expected to continue rising, although at a slower pace than the previous year, with a net balance of +35%, down from the +53% average in 2023.
“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,” Leaf said. “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.”
For Tomer Aboody (pictured right), director of property lender MT Finance, a review of stamp duty alongside 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,” Aboody said.
“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.”
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