Overall house prices in June remained positive across the UK but the Mortgage Market Review (MMR) and the bank’s rhetoric are having a drag on activity, RICS says in its latest monthly survey report.
The report points out that demand for property stands at its slowest pace since the beginning of 2013, with the London market particularly affected by the increased air of caution, where buyer demand fell for the second consecutive month in June. However, this follows 15 successive monthly increases.
Nationwide, a net balance of 53% of respondents reported an increase in prices in June, down from 56% in May and prices rose in each of the 12 areas represented.
The South East and Northern Ireland experienced the strongest price gains for the second consecutive month, meanwhile, the rate of price growth in the London market appears to be easing.
The slower trend in demand has also been reflected in the newly agreed sales balance, a good indicator of market activity, which is showing the most subdued pace of increase since autumn 2012. Meanwhile, new instructions increased for the first time since December 2013.
In the month that saw the Band of England introduce a 15% cap on high mortgages, respondents also perceived banks to be lending less, with average Loan to Value (LTV) ratios among first time buyers dropping for the second consecutive month to 85.1% compared with 85.3% in April.
Looking ahead, as a result of the change in demand and increased supply, the number of respondents expecting prices to rise, rather than fall, over the next three months, dropped to 26%, well down from 46% in May.
‘The Bank of England's recent introduction of a ceiling on high loan to income lending and a 3% interest rate stress test is unlikely on its own to have an immediate influence on the market. However, rhetoric from key officials at the Bank, including Mark Carney, alongside the consequences of the introduction of the MMR are already slowing momentum particularly in London,’ said Simon Rubinsohn, RICS chief economist.
‘Buyer enquiries in the capital are now slipping back which suggests that the very sharp upward move in prices will flatten over the coming months. Elsewhere around the country we believe the more hard fought recovery should remain intact,’ he added.
Peter Rollings, chief executive officer of Marsh & Parsons, said that it is notable that national house prices are increasing faster than rates recorded in London for the first time since the recession.
‘This is proof that the rest of the country is back on track in terms of housing growth and that we’re moving into a new stage of the housing recovery,’ he pointed out, adding that RICS market data for London reflects his firm’s own knowledge into current trends, with demand for property in the capital easing and supply continuing to rise.
‘As a result we predict a continued slowing down in the rate of price growth and a natural levelling off of the market over the next 12 months, as it returns to a steadier, healthier rate of growth,’ said Rollings.
‘However, when taking a closer look at the London market, interesting trends can be seen. Our London Property Monitor published later this month is expected to show that whilst prices in Prime Central London areas such as Chelsea and Notting Hill, are stabilising, prices in Outer Prime London and the ‘urban villages’ of Fulham, Clapham and Balham, are continuing to climb at a higher rate than the rest of the city, he added.
The report also shows that house price gains in June remained positive across Scotland. Scottish house prices remained stable, as a net balance of 57% of respondents reported an increase in prices in June, up from 34% in May.
Looking ahead, the number of respondents expecting prices to rise, rather than fall over the next three months remained steady at 40%, up from 44% in May.
‘In Scotland we continue to see demand exceeding supply and this has a direct impact on prices. While we do expect this to level out as summer months continue, the lack of supply is a key factor driving the Scottish market and one which will be addressed within the Scottish Housing Commission’s recommendations published later this month,’ said Sarah Speirs, director of RICS Scotland.
Northern Ireland’s housing market recovery was sustained during the first six months of 2014 and is set to continue into the second half of the year, the report also shows. RICS Northern Ireland spokesman Samuel Dickey said that while variations in the market remain, overall the recovery has been stronger than expected, reflecting wider economic conditions.
June was the 13th month in succession that the RICS and Ulster Bank survey indicated that prices rose, with a price balance of +83 for the month. Sales also increased, according to the survey, with a net balance of 69% of respondents saying that transactions were up.
‘With the Northern Ireland economy experiencing a strong first half of 2014, overall the housing market saw positive progress. The evidence is that transactions and sales increased in the six months to the end of June and that we are steadily making progress away from the bottom of the market towards a more normally functioning property market,’ explained Dickey.
‘Whilst still gradual and uneven, the recovery has been stronger than anticipated, reflecting the better than expected economic performance. That said, we are still something like 50% below peak prices. The market will experience seasonal adjustments in the months ahead, and there will regional variations, but overall we expect the recovery to continue,’ he added.
