Rental prices up despite weak tenant demand
The UK housing market lost momentum in February, with buyer demand weakening ahead of an upcoming Stamp Duty change, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Residential Property Survey.
The report found that buyer demand declined, with a net balance reading of -14% — a drop from -1% in January and the lowest level since November 2023. Respondents attributed the slowdown to the impending reduction in the Stamp Duty threshold, set to decrease from £250,000 to £125,000 on April 1. Economic uncertainty and geopolitical concerns also contributed to the softer market conditions.
Despite these pressures, house prices at a national level remained on an upward trajectory, though at a slower pace. The net balance for price growth was +11%, marking a continued, albeit subdued, increase. However, price growth has moderated over the past two months, down from +25% in December and +21% in January.
Looking ahead, most respondents expect house prices to rise over the next 12 months. The net balance for year-ahead price expectations stood at +47%, aligning with the six-month average for this measure.
“The UK housing market appears to be losing some momentum as the expiry of the temporary increase in Stamp Duty thresholds approaches,” said Simon Rubinsohn (pictured left), RICS chief economist. “Some concerns are also being expressed by respondents about the re-emergence of inflationary pressures and the more uncertain geopolitical environment.
“That said, looking beyond the next few months, sales activity is seen as likely to resume an upward trend with prices also moving higher.”
Rubinsohn also noted that an increase in available housing stock was giving buyers more options, while new-build activity remained weak. The Planning and Infrastructure Bill, introduced to Parliament this week, could play a role in shaping future supply.
Meanwhile, survey respondents noted that while the Bank of England’s recent interest rate cut was a positive development, there remains a strong desire for further reductions.
“Although we have seen a confident market over the past 12 months as buyers make their move due to a better interest rate environment and lower inflation, both buyers and sellers have been used to much lower rates and are hoping for further cuts in coming months,” commented Tomer Aboody (pictured centre), director of specialist lender MT Finance.
“While sales volumes are up, they are still well below historical figures and some intervention will be needed in order to inject more life into the market. Unfortunately, particularly given further difficulties ahead as the fallout from the recent Budget continues, any positive intervention doesn’t seem to be on the immediate horizon.”
Rental market sees weak demand, but rents still rising
In the lettings sector, tenant demand remained subdued for the fourth consecutive month, with a net balance of -4% in February. This marks the longest period without a positive reading since RICS began its monthly lettings dataset in 2012. However, rather than signalling a sharp decline, the data suggests a stagnant market.
Landlord instructions also remained in negative territory, recording a net balance of -22%. However, despite weak demand, rental prices are expected to rise, with a net balance of +34% of survey participants predicting increases in the next three months. The decline in supply appears to be outpacing the fall in demand, driving rents higher.
“Despite a flatter trend in demand for private rental properties, the key RICS metric capturing rental expectations is still pointing to further increases demonstrating that the challenge around supply spans all tenures,” Rubinsohn said.
“Affordability is still acting as a check on rent rises but, lack of supply particularly of smaller flats and houses, has certainly prevented more substantial reductions in activity over the past few weeks,” added Jeremy Leaf (pictured right), north London estate agent and a former RICS residential chairman.
“Fortunately, some flats freed up by tenants trying to buy, before becoming impossible for them to take advantage of the stamp duty concession, have bolstered availability and helped to maintain a more reasonable balance with continuing almost insatiable demand.”
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