Things are not going well in the lettings market too
The number of new buyer enquiries and newly agreed sales continue to slide as borrowing costs continue to rise, according to the Royal Institution of Chartered Surveyors (RICS).
New buyer enquiries fell to a net balance of -45%, down from -20% in May, which is the lowest reading recorded since the -51% of October 2022 in the aftermath of the chaotic mini budget.
The net balance of newly agreed sales also plunged to -34% last month, which is significantly weaker than the -8% recorded in the previous month. June’s newly agreed sales figure represents the most downbeat figure since December 2022, when the net balance was at -38%.
The latest UK Residential Market Survey from RICS also showed that the indicator representing trends in house prices nationally declined to a net balance of -46% from the -30% seen in May.
House price expectations, RICS added, now stand in firmly negative territory at both the three- and 12-month forecast markers.
Data provider Moneyfacts has reported that the average two-year fixed residential mortgage rate has now climbed to a 15-year high 6.66%. The average rate for a five-year fix also breached the 6% mark last week.
“The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key RICS metrics regarding buyer enquiries, sales, and prices which have all retreated over the past month,” Simon Rubinsohn, chief economist at RICS, commented.
“Inevitably in this environment, activity levels are likely to remain relatively subdued. However, an important message coming back from RICS agents is around ensuring prices are set with an eye on the market conditions of today, rather than the recent past; when this is done, sales are taking place.”
Rubinsohn also noted that house prices are only very modestly down on their recent highs and well above where they stood prior to the onset of the pandemic.
“Further declines are possible but need to be seen in the context of the previous strength in the market,” he said.
High tenant demand still pushing rental prices up
In the lettings market, a net balance of +40% of respondents saw an increase in tenant demand. At the same time, however, the net balance for landlord instructions dropped to -36%.
RICS pointed out that with rising demand still being met with a lack of available properties to let, a net balance of +53% of contributors to the survey anticipate rental prices being driven higher over the near-term.
Again, due to rising interest rates, landlords’ monthly payments on buy-to-let mortgages have also been increasing and will continue to increase, as the Bank of England has predicted in its recently published Financial Stability Report.
“Some landlords hit with further interest rate increases are finding themselves in a negative cash flow position once other costs are accounted for,” William Delaney, managing director at estate agency Lawrence Ward & Co, said.
“The inevitable departure of private landlords from the sector will exacerbate the problems of lack of housing and rising rents.”
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