Residential property market in UK is faltering, latest survey shows
Record low stock numbers, political uncertainty and the aftermath of tax changes are obstacles currently hindering the UK housing market, according to the latest analysis.
Both price growth and sales activity were subdued during the month of July with the South East and London pulling down the national average figures, the monthly survey from the Royal Institution of Chartered Surveyors (RICS) shows.
While there is a continued lack of momentum for both sales and enquiries, it is sales prices for more expensive homes in the £1 million plus sector that are coming in below the initial asking price.
In July the headline price growth gauge slipped from +7% to +1%, signalling prices were broadly flat over the period and representing the softest reading since early 2013.
Nevertheless, the national figure conceals diverging trends across parts of the UK. Indeed, house prices remain quite firmly on an upward trend in some areas, led by Northern Ireland, the West Midlands and the South West.
By way of contrast, the net balance reading for central London remains negative with the pace of decline broadly matching that of the previous three months. Chartered surveyors are starting to report early signs of this flatter trend permeating outside the capital, as the price balance for the South East of England fell into negative territory, posting the weakest reading for this part of the country since 2011.
In an extra question, contributors to the July survey reported on sales prices in comparison to their asking price. Nationally, homes at the top end of the market saw the greatest deviation in agreed prices, with 68% of respondents reporting sales prices coming in below the asking price.
The report says that while this is not uncommon in a flatter market, some 33% of respondents said the agreed price was up to 5% below the asking price and 26% reported between 5% and 10% under.
Looking ahead, near term price expectations continue to signal a flat trend over the coming three months at the headline level. Over the next 12 months respondents remain more optimistic with a net balance of +28% anticipating an increase in prices, albeit this was the least positive reading since last July at the time of the European Union referendum results.
Again, central London continues to exhibit the most cautious 12 month projections relative to all other parts of the UK.
Alongside this, sales activity continues to lack momentum, with the net balance readings for buyer enquiries and agreed sales remaining slightly negative, at -4% and -5% respectively. Respondents are not anticipating activity in the sales market to gain impetus at this point in time, with both three and 12 month expectations series virtually flat.
The main element holding back the market continues to be a sustained deterioration in the flow of fresh listings, with new instructions dwindling for the seventeenth consecutive month during July. Consequently, average stock levels on estate agents’ books remain close to record lows, limiting choice for potential home buyers, the report points out.
In the lettings market, the quarterly figures also portray a more subdued picture. Although tenant demand continued to edge higher, it did so at the slowest quarterly pace going back nearly 20 years.
Meanwhile landlord instructions continued to fall, with 8% of respondents reporting a decline instead of an increase in listings. The sustained lack of supply means rents are expected to grow, albeit only modestly in the coming three months. And, looking a little further, they are projected to increase by a little under 2% nationally over the next year.
‘Sales activity in the housing market has been slipping in the recent months and the most worrying aspect of the latest survey is the suggestion that this could continue for some time to come,’ said Simon Rubinsohn, RICS chief economist.
‘One reason for this is the recent series of tax changes, but this is only part of the story. Lack of new build in the wake of the financial crisis is a more fundamental factor weighing on the market. And there are some very real consequences for the economy from all of this including the impact on the ability of people to be mobile when looking for work,’ he explained.
‘The flatter trend in price growth is arguably a silver lining, but there is no real indication that the housing market will become materially more affordable anytime soon. Hence the need for the government to press ahead with the Build to Rent initiative, as well as continuing to focus on other tenures alongside home ownership to try address this critical issue,’ he added.
Stephen Wasserman, managing director at West One Loans, believes that despite the figures indicating a slowing in activity, the market is resilient. ‘We’re optimistic that while we may continue to see a few stutters in due course, the overall market will grow in time,’ he said.
‘The bridging sector in particular has been flourishing in recent months, as those looking to capitalise on quick sales can do so with the flexibility and speed that this unique type of financing offers, and we expect this trend to continue,’ he added.
It is good news for first time buyers, according to Jeremy Duncombe, director of the Legal & General Mortgage Club. ‘In fact, with house prices now rising in line with wage inflation, for many previously struggling first time buyers the housing market now offers more opportunity to make the first step,’ he pointed out.
‘However, the long running issue of housing supply remains, and it’s vital that the Government continues to find and act on ways to address our limited housing stock to boost housing supply and give more younger buyers a better chance at home ownership,’ he added.
The figures should not be seen as a sign of a downturn, said Richard Sexton, director at e.surv, as the whole market has been steadily growing. ‘We have seen increases in mortgage approvals year on year, driven by remortgage activity, particularly in the North,’ he explained.
‘However, the fundamental issue which remains and prevents a significant advancement in our housing market is a chronic lack of supply. The Government must begin to put words into action and address this problem, sooner rather than later, to enable more first time buyers to step onto the property ladder and increase market fluidity,’ he added.