In the latest RICS UK Residential Market Survey, the UK housing market showed a rise in confidence, following a significant drop in activity and price expectations in the wake of the EU vote. Based on its survey, RICS has predicted that UK house prices and sales will rise over the next three and 12 months as activity in the market stabilises.
The headline price indicator edged higher during August, with a net balance of +12% of respondents reporting an increase in prices (up from +5% previously). This halts a run of five consecutive reports in which the net balance had softened, although the current reading is still the second weakest posted over the past eighteen months. In London, the net balance remained negative for a sixth consecutive month, with 30% more respondents noting a fall in prices, as opposed a rise. By way of contrast, the net balance figures suggest prices increased in most other parts of the UK.
Looking ahead, national near term price expectations climbed into positive territory for the first time since April, with a net balance of 10% of respondents now anticipating prices will rise over the coming three months. Nevertheless, expectations remain generally modest across the UK. Contributors are projecting prices in the North East to slip a little further in the near term but London expectations have now stabilised. Further out, over the next twelve months, prices in the capital are projected to see little change, while all other parts of the UK are expected to see house prices drift higher.
The real shortage of property for sale remains an overriding feature of the market and also a key factor supporting prices. This looks set to persist for a while yet as new instructions to sell declined once again during August, albeit only marginally. As a result, average stock levels on estate agents books slipped for the third successive month and now stand within a whisker of the record low posted in December of last year.
Alongside this, new buyer demand decreased slightly at the national level, although the pace of decline eased significantly, with a net balance of -7% more contributors reporting a fall in demand (up from -25% in July).
In an extra question included in this month’s survey, contributors were asked for a more detailed breakdown of changes in new buyer enquiries over the past three months - looking at trends across different categories of buyers. The results show enquiries from buy-to-let investors dropped most sharply with a balance of -57% more respondents citing a decline. Over the same period, demand from first time buyers and existing owners also reportedly fell, but to a smaller degree, returning balances of -15% and -11% respectively.
Following a couple of months in which sales declined sharply in the aftermath of the referendum, volumes stabilised during August, as the agreed sales indicator improved to zero from -32% last time. That said, sales still appear to be falling in parts of the country, London and the West Midlands in particular, but the pace of decline has slowed in each case. Going forward, the sales expectations series (three months ahead) improved noticeably, posting the strongest reading since February. Furthermore, at the twelve month horizon, sales projections have now climbed out of negative territory across all areas of the UK.
In the lettings market, demand from tenants increased at the headline level (non-seasonally adjusted figures), with growth gathering pace relative to the three months to July. At the same time, landlord instructions continued to fall modestly, and this supply/demand mismatch is expected to squeeze rents higher during the year ahead. This is generally the case across the whole of the UK, although London is a slight exception, where respondents envisage virtually no rental growth over the coming twelve months.
Interestingly, a net balance of 12% more respondents feel landlords are more likely to decrease (rather than increase) the size of their portfolio over the next twelve months. Stamp Duty changes and scheduled cuts to mortgage interest tax relief are both seen as important factors diminishing the attractiveness of buy-to-let as an investment. Contributors also sense that landlords are unlikely to expand their residential lettings portfolios over the next five years, but will keep them broadly unchanged.
Simon Rubinsohn, RICS chief economist, said:
“There are clear signs that the housing market is settling down after the initial surprise of the outcome to the EU referendum. Buyer enquiries did dip again in August, but only modestly and, more significantly, sales expectations are beginning to edge upwards once again. It is likely the swift response from the Bank of England, both in terms of the lowering of the capital buffer and the cut in interest rates, has played a role in helping to support confidence.
“The more assured mood is also reflected in some of the longer-term RICS indicators, although this in itself could serve to reignite ongoing concerns surrounding affordability with five-year projections for both prices and rents in the latest survey back to their highest level since May.”