UK housing market update: September 2023

Welcome to our latest analysis of the UK property market, looking at the trends, challenges, and opportunities that continue to shape the housing sector.

Demand and Agreed Sales: A Troubling Descent

The backdrop painted by the August 2023 RICS UK Residential Survey, released this week, reveals a market that continues to grapple with uncertainties. A confluence of factors, including rising mortgage rates, has led to a stark decline in buyer demand and agreed sales. The figures paint a sombre picture as both indices languish at a net balance of -47%, marking a concerning trend.

What is particularly noteworthy is the persistence of this downturn, with three consecutive reports registering negative results for buyer demand. This widespread retreat is not limited to any particular region; all parts of the UK are witnessing a significant pull-back in demand. The situation is mirrored in the newly agreed sales net balance, which stands at -47%, marking the weakest reading since the early stages of the pandemic. The continued downturn in sales activity casts a shadow over the property market's near-term prospects.

However, it's not all doom and gloom. There's a glimmer of hope as near-term sales expectations, while still subdued, show a marginal improvement. The headline net balance has shifted from -45% in the previous month to -38%. This slight uptick hints at a potential stabilisation in sales volumes over the next twelve months, as the net balance moves from -25% in July to -5% in August.

The Sluggish Pace of Property Transactions

A concerning trend in the property market is the extended timeline for finalising a sale. Respondents report that sales now take, on average, close to 20 weeks. This represents a noticeable increase from the 19 weeks recorded a few months ago and is significantly longer than the approximately 16 weeks seen in late 2021. The prolonged sale duration underscores the challenges buyers and sellers face in the current environment.

New Instructions and Market Appraisals: A Troubling Decline

The flow of new instructions listed on the sales market has deteriorated sharply, recording a net balance of -26% in August. This decline is a stark contrast to the figure of -17% observed previously and represents the weakest monthly trend in new instructions since September 2021. Additionally, the number of market appraisals undertaken in August remains below the levels seen twelve months prior, according to a net balance of -40% of respondents. These trends signal a potential slowdown in the influx of new properties onto the market.

House Prices: A Market in Flux

House prices remain a critical metric in the property market's health assessment. The August survey reveals a net balance of -68% for the headline price growth gauge, marking the most negative reading since February 2009. This decline is not confined to a specific region; virtually all parts of the UK are witnessing a relatively steep fall in house prices. Notably, the West Midlands, East Midlands, East Anglia, and the South East of England have provided particularly negative feedback in this regard.

In a surprising twist, Northern Ireland is the only region where house prices remain in positive territory, albeit with a net balance of +7%. However, this figure represents the softest reading across the country since 2013, with the exception of two months at the start of the pandemic. Despite this glimmer of positivity, near-term price expectations suggest further declines are on the horizon. The net balance has deepened its negative territory, standing at -67% compared to the previous reading of 60%. This indicates that the property market is bracing for more turbulence in the coming months.

At the twelve-month horizon, the net balance remains relatively stable at -48%, indicative of a sustained downward shift in house prices anticipated at the national level. These figures highlight the challenges faced by homeowners and investors alike as they navigate a market that is in a state of flux.

The Lettings Market: A Beacon of Resilience

In contrast to the challenges faced by the sales market, the lettings sector continues to display remarkable resilience. Tenant demand remains robust, with a net balance of +47% of survey participants reporting an increase. What's even more striking is that this demand surge is not limited to specific regions; all UK regions and countries have experienced sustained growth in the demand for rental accommodation.

However, there's a persistent mismatch between demand and supply in the lettings market. New landlord instructions continue to fall, registering a net balance of -20% in August. Landlords leaving the sector are a common theme in anecdotal comments, contributing to the ongoing supply-demand imbalance.

Given this imbalance, a net balance of +60% of contributors foresee rental prices rising over the next three months. This projection underscores the resilience of the rental market and the potential for landlords to leverage the demand-supply gap to their advantage.

Conclusion: Navigating Turbulent Waters

This latest survey results paint a complex portrait of the UK property market. While the sales market grapples with declining demand, a sluggish pace of transactions, and falling house prices, the lettings market remains strong. The demand for rental accommodation continues to surge, creating opportunities for landlords in the face of diminishing supply.

As the market faces uncertainties and challenges, it's crucial for property investors, homeowners, and landlords to stay informed, adapt to changing conditions, and explore innovative strategies to thrive in these turbulent waters. At KPM, we are committed to providing expert guidance and tailored solutions to help you navigate the ever-evolving property landscape with confidence.

Remember, the property market is dynamic, and opportunities often arise in unexpected places. Stay tuned for more insights and analysis as we continue to monitor and decode the trends shaping the UK property market.

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