The private rental sector is "in trouble"
Higher mortgage rates continue to slow down the UK housing market, with new buyer enquiries in July posting almost the same figure as the previous month at -45%, according to the Royal Institution of Chartered Surveyors (RICS).
Findings of the latest UK Residential Market Survey indicate a sharp downturn in buyer demand following the recent hikes in mortgage interest rates, as all UK nations and regions displayed a firmly negative return for new buyer enquiries over the month.
RICS said a net balance of -44% of respondents noted a decline in agreed sales during July, down from the -36% reported in June, representing the weakest reading for the sales measure since the early stages of the pandemic.
Near-term sales expectations have also turned increasingly subdued with a clearly negative reading of -45% in July, weaker than the respective net balances of -38% and -11% in June and May. On a 12-month view, sales volumes posted a net balance of -25%, according to the RICS Residential Market Survey.
For new listings coming onto the sales market, the headline new instructions net balance dropped to -13% in July, compared to -3% in the previous month, showing a renewed deterioration in the flow of supply.
“The recent uptick in mortgage activity looks likely to be reversed over the coming months if the feedback to the latest RICS Residential Survey is anything to go by,” Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, commented. “The continued weak reading for the new buyer enquiries metric is indicative of the challenges facing prospective purchasers against a backdrop of economic uncertainty, rising interest rates, and a tougher credit environment.”
Craig Henderson, chartered surveyor at Graham & Sibbald, added that the ongoing inflationary pressures are causing buyers to think long and hard over any purchase decision.
“Prices are holding up, but where they go later in the year will depend on costs of borrowing and ongoing inflation,” he said. “Caution is at the forefront of most in the market.”
Meanwhile, James Perris, director of De Villiers Surveyors, offered a more positive outlook for the housing market.
“The market has stabilised after the recent rate rise with buyers coming back into the market,” Perris noted. “This should continue if inflation falls further, and interest rate rises are paused.”
Demand still outstripping supply in the lettings market
Looking at the lettings market, RICS said tenant demand rose over the three months to July, with a net balance of +54% of respondents citing an increase – the strongest quarterly pick-up in rental demand since the start of 2022.
While demand increased, landlord instructions decreased once again, with the latest net balance falling to -30% from -24% previously.
Considering the mismatch between rising demand and dwindling supply, +63% of respondents expect rental prices to increase over the next three months.
“Demand continues to outstrip supply,” Keith Pattinson, chairman at Keith Pattinson Estate Agents, remarked. “Tenants are staying in properties for longer and the increase in legislation has deterred some ‘accidental landlords’ from renting. We continue to see new buy-to-let investors buying. However, many portfolio landlords are actively reducing their portfolios.”
Jason Coombes, residential lettings partner at Cottons Chartered Surveyors, said the private rented sector (PRS) needs help, citing a number of challenges that landlords are currently facing.
“Landlord profits are at their lowest point in 16 years,” he said. “Landlords with BTL mortgages have been hit by a 240% increase in interest payments since Dec 2001. Stock is as at an all-time low, and the government has chosen to introduce more costs to landlords with selective licensing schemes. PRS is in trouble.”
Any thoughts on the findings of the latest RICS Residential Market Survey? Let us know by leaving a comment in the discussion box at the bottom of the page.
