The UK housing market showed signs of stabilisation in August, though uncertainty over interest rates continued to constrain recovery, according to the latest RICS UK Residential Market Survey.
Buyer demand and agreed sales both improved from recent lows, though both measures remained in negative territory. The net balance for new buyer enquiries improved to -19%, the least negative reading since January and marking a fifth consecutive monthly improvement.
Agreed sales strengthened, with the net balance rising to -17% compared with a recent low of -38% in April, representing the strongest reading since February. Expectations for sales over the next three months moved closer to neutral, improving from -13% in July to -3% in August.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, said buyers and sellers were finding it difficult to dismiss concerns about the impact of the protracted war in Iran on the cost of living and mortgage rates. He added that speculation about the Budget’s impact on taxes was adding to buyer caution.
Tom Bill, head of UK residential research at Knight Frank, commented that after a spring slowdown driven by higher mortgage rates, demand had stabilised as borrowing costs reset and the government avoided fuelling pre-Budget speculation that has deterred buyers in recent years.
House prices under continued pressure
Despite improving activity indicators, house prices continued to face downward pressure. The headline price balance edged up from -29% in July to -28% in August, having gradually improved from -35% in April. Survey respondents still expect prices to fall over the next three months, with the 12-month outlook remaining broadly flat.
Regional differences remained significant. London recorded a more negative price balance than the national average, though conditions improved from July. By contrast, respondents in Northern Ireland continued to report rising prices, while the North West of England maintained modest price growth.
There was little change in the supply of homes coming onto the sales market. The new instructions balance stood at zero, compared with -2% in July. Market appraisal activity also remained weak, with the balance of -17% indicating fewer appraisals than a year earlier, suggesting the sales market is unlikely to see a significant increase in new listings in the near term.
Rental market divergence
Conditions in the lettings market remained markedly different from the sales market. Tenant demand continued to rise while landlord supply remained constrained, with the monthly tenant demand balance standing at +18% and landlord instructions recording a negative balance of -14%.
As a result, expectations for further rent increases strengthened sharply. The balance of respondents expecting rents to rise over the next three months jumped from +33% in July to +44% in August. Over the next 12 months, respondents expect UK rents to increase by around 3% on average.
Leaf noted that continuing uncertainty in the sales market had resulted in more lettings activity, with tenants taking advantage of their new ability to end fixed-term constraints under the Renters’ Rights Act. He added that rents had held firm, supported by supply shortages, especially of larger flats and family houses, as exiting landlords were not being replaced fast enough.
Bill said rising rental values reflected one of the unintended consequences of the Renters Rights Act, with landlords setting higher asking rents to reflect the greater risks they face around void periods and rent collection against the backdrop of lower supply.
Recovery outlook remains uncertain
Tarrant Parsons, RICS head of market research and analysis, said August’s results showed a market gradually finding its footing, with key activity indicators having become progressively less negative over recent months. However, he cautioned that any potential recovery remained fragile and faced two significant near-term tests.
The Bank of England’s increasingly hawkish tone, following renewed volatility in global energy markets, served as a reminder that the borrowing cost outlook could yet deteriorate further. With the October Budget approaching, speculation over potential changes to property taxation was adding another source of caution for both buyers and sellers.
The data suggests the UK housing market remains in a period of adjustment, with modest improvements in buyer activity offset by persistent price pressures in the sales market and mounting concerns over rental affordability in the lettings sector.
