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UK house sales are set to fall as high mortgage rates deter buyers, while rental prices surge as tenants enter bidding wars for the few properties available to let, according to a leading property survey published on Thursday.
The monthly report by the Royal Institution of Chartered Surveyors paints a contrasting picture of a slower sales market, with both buyers and sellers waiting for the economic outlook to settle, and a frenetic rental market where rising costs and regulation are driving out landlords.
Rics said its measure of newly agreed sales — calculated as the difference between the percentage of surveyors seeing rises and falls in the past month — fell to a net balance of -44 per cent in July, down from -36 per cent in June and the weakest since the early stages of the coronavirus pandemic. Compared with June, a bigger proportion of surveyors expected sales to weaken further over the next three months.
Meanwhile, demand from tenants increased at the strongest pace since early 2022 and the net balance of surveyors expecting rental prices to rise in the near term hit a record high of 63 per cent.
Simon Rubinsohn, Rics chief economist, said the survey pointed to the challenges facing buyers but that it was equally concerning that “rents are likely to continue rising sharply despite the cost of living crisis”.
The slowdown in sales activity reflects a sharp drop in both buyer demand and in the number of homeowners listing properties.
Surveyors remained gloomy about the outlook for house prices, with a net balance of 49 per cent expecting them to fall over the year ahead, the same reading as in June. But some suggested the market was more likely to slow than fall, as sellers were not yet willing to accept lower offers.
“It’s paused rather than dropping,” said Andrew Burnett, an agent based in Sussex. Stan Shaw, head of the agency Mervyn Smith, based near Richmond in Surrey, said buyers had started to make offers well below asking prices after the Bank of England lifted interest rates by 0.5 percentage points in June, but that most sellers were “not prepared at this stage to accept hefty drops”.
Richard Franklin, an agent based in Tenbury Wells, Worcestershire, said: “There is a raft of overpriced rural stock with vendors failing to appreciate the market has moved on from WFH and lockdown.”
The BoE said last week that it expected fewer forced sales than in previous housing market downturns, potentially limiting the scale of house price falls. However, it said one factor that could drive down house prices would be rising sales of properties by buy-to-let landlords.
Several respondents to the Rics survey said they were now seeing more landlords exiting the market because of the sharp rise in the cost of buy-to-let mortgages, changes in tax rules and other regulations, and unease over the potential impact of new legislation intended to give tenants more security.
“The rental market is broken,” said Will Ravenhill, managing director of the Leicester-based lettings agency Readings, who saw many landlords leaving the market, while others were “increasing rents to ridiculous levels to adhere to their mortgage covenants”.
Tenants have also been staying in properties for longer on average, adding to the squeeze on supply.
Kevin Burt-Gray, director at the Pocock & Shaw agency in Cambridge, said most rental properties received “multiple applications” within days of coming to market.
Will Barnes Yallowley, director at the Kensington-based agency Tate Residential, cited one case where a two-bed flat had attracted 11 offers and let well above the asking price within a week.
