The latest findings from the Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey for July 2023 depict a scene of declining fortunes as mortgage rates continue to rise.
At a national level, the figures for new buyer enquiries remained low, registering at -45%, mirroring last month's -46%. This consistent negative trend underscores an acute decline in buyer interest, a clear outcome of the recent surge in mortgage interest rates. Zooming in on the geographical landscape, every region of the UK experienced a sharp decline in new buyer enquiries during the month.
In tandem with the reduced demand, a -44% net balance of survey respondents reported a contraction in agreed sales during July. This marks a worsening scenario compared to the previous figure of -36%, and represents the weakest reading for sales since the start of the pandemic.
As we peer into the future, the outlook for sales has grown increasingly sombre, evidenced by a negative reading of -45% in July. This represents a substantial dip from June's -38% and May's -11%. Looking ahead on a year-long horizon, the net balance for sales volumes stands at -25%, indicating a decline. However, there's a glimmer of less gloom as this reading edges slightly higher from June's -31%.
In the realm of fresh property listings entering the market for sale, the headline new instructions net balance has taken a hit, plunging to -13% in July from June's -3%. This data underscores a renewed deterioration in supply levels. Contributing to this narrative, market insiders continue to report fewer property appraisals carried out compared to the same period last year, showing a notable decline of -37%.
Meanwhile, inventory levels in estate agent portfolios have remained relatively steady over the past few months, averaging around 38 properties. While this is an improvement from the rock-bottom levels witnessed late last year, it's clear that supply remains under significant constraints when viewed from a historical context.
Shifting our focus to the lettings market, the demand from tenants witnessed a robust uptick over the three months leading to July, as revealed by a positive reading of +54% from survey respondents indicating an increase. This signals the biggest quarterly surge in rental demand since the start of 2022. Conversely, landlord instructions continue to dwindle, as the latest net balance plummeted to -30% from the previous -24%.
Given this enduring imbalance between surging demand and dwindling supply, a net balance of +63% of respondents anticipate a rise in rental prices over the upcoming three months. This figure is a marked escalation from the previous quarter's +55%, setting a new record high for the series.
In response to these findings, RICS Chief Economist, Simon Rubinsohn, cautioned, “The recent surge in mortgage activity seems poised for a reversal in the coming months if the signals from the latest RICS Residential Survey hold true. The persistent weak performance of the new buyer enquiries metric underscores the hurdles that potential buyers are grappling with in light of economic uncertainty, soaring interest rates, and a more stringent credit environment."
Rubinsohn further stated, “Equally concerning are the insights emanating from the lettings markets. Demand shows no signs of abating, supply remains tightly constricted, and as a result, rents are poised to rise significantly despite the ongoing cost-of-living crisis.”
The UK's housing market appears to be navigating treacherous waters, with buyers retreating in the face of higher mortgage rates, and the prospect of further challenges looming on the horizon.
