RICS: ‘Storm clouds are visible in the housing market’

New research from the Royal Institute of Chartered Surveyors (RICS) has highlighted further lost further momentum in the housing market during September, with new instructions and property sales turning negative.

The latest RICS UK Residential Market Survey showed members reported the softest net balance level of agreed sales last month since May 2020 at minus 27%.

New buyer interest fell again, with a net balance of -36% of respondents citing a fall in enquiries. 

This is the fifth month in a row in which buyer interest has dropped with all regions and countries of the UK now experiencing this trend, the RICS said.

New instructions to sell also continued to fall, with agency stock levels remaining at historic lows. of 34 on average.

The pipeline also appears to have deteriorated further, with the net balance for new market appraisals dropping to -20%, down from -3% in August, according to the report.

As the market loses further momentum, sales have unsurprisingly fallen over the month, with the September figure the most negative reading since May 2020 and the number of sales having now fallen for five months in a row. Looking ahead, sales expectations over the next three months, and the twelve month sales predictions also remain negative.

A third more of the respondents predicted house prices would rise rather than fall over the next three months but a net balance of -18% of respondents now predict a slight dip in prices over the next year, down from a reading of +3% last month.
 

Simon Rubinsohn, chief economist for the RICS, said: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market. 

“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.

“How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.

“For now, mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows. 

“However, as lenders have been a lot more cautious through this cycle with high loan to value mortgage accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market.”

Commenting on the report, Tom Bill, head of UK residential research at Knight Frank, said: “An era of double-digit price growth was already coming to an end but the mini-Budget looks set to accelerate that process.

"Sentiment has been damaged as lenders have struggled to fix rates, marking the end of a 13-year period of ultra-low borrowing costs. While we expect downwards pressure on prices, we do not expect the scale of declines seen during the global financial crisis thanks to record-low unemployment and well-capitalised lenders.”