Sales market sees improvement in July as mortgage rates lower – RICS – The Intermediary

New buyer enquiries saw an increase in July, growing from -6% last month to 2%, the latest RICS UK Residential Property Survey has revealed.

While still broadly flat, this figure marked the first time in four months that RICS recorded positive numbers of buyers looking to enter the market.  

Average mortgage rates lowered slightly during the month, as the market correctly anticipated a rate cut by the Bank of England.

The number of agreed sales also saw an improvement.

Whilst the month’s -2% net balance result was still inside negative territory, it marked a clear improvement and continued the positive trajectory, having scored -13% and -6% in May and June, respectively.

A net balance of +30% of respondents predicted sales rising over the next three months, which was the most positive sentiment since January 2020.

The 12-months view was also more optimistic, with +45% net balance of respondents expecting sales increases in 12 months, up from +40%.

Looking to house prices, the figures suggested these were still decreasing at the UK-wide level.

The overall figure, which captured and combined all regional data, reported a -19% net balance result.

All English regions exhibited negative sentiment towards prices, with East Anglia and Yorkshire & the Humber exhibiting the weakest readings.

However, Scotland and Northern Ireland saw prices rising.

Looking ahead, a +46% net balance of respondents expected prices to be higher in a year’s time.

In the rental market, the gap between demand and supply continued to widen.

Demand continued to rise modestly, with a +18% net balance figure reported this month, while sentiment towards landlord instructions stood at -16% net balance.

While the growth rate of the gap reduced a touch, the continued movement indicated likely further rental price rises for the foreseeable future.

Simon Rubinsohn, RICS chief economist, said: “The new government’s focus on boosting housing development alongside the recent quarter point base rate cut does appear to have shifted the mood music in the sales market, with projections for both near and medium activity picking up according to the latest RICS Residential Market Survey.

“Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector.

“However, if there is a bit more hope regarding the sales market, the difficulties in the lettings market remain as intense as ever with little prospect of any relief in sight.

“Demand is continuing to run ahead of supply with many respondents to the RICS survey noting that landlords are looking to reduce holdings in the face of an increasingly hostile environment for investment in the sector.”   

Reaction:

Jeremy Leaf, north London estate agent and a former RICS residential chairman:

“We have noticed more optimism about prospects for the housing market now that election uncertainties are behind us and mortgage rates seem to be heading south. 

“However, with so many buyers and sellers on holiday, demand and the pace of transactions has only picked up a little and we expect a stronger bounce-back in September.

“We have seen renewed interest from small builders and investors too, keen to take advantage of what they believe will be a stronger sales performance next year.

“On the other hand, rents have been softening a little in response to an increase in supply which is forcing some landlords to be a bit more flexible in order to secure better-quality tenants.

“Looking forward, September is generally our busiest time of the year for lettings boosted by students seeking accommodation in time for the new academic year, so we anticipate the small falls in rents to be temporary only.”

Tom Brown, managing director, real estate at Ingenious:

“Today’s data shows that the resilience and appeal of the UK property sector persist.

“Though we have seen higher inflation and sticky borrowing rates, we welcome the BoE’s recent rate cut and what will hopefully be the start of the much needed falling rate cycle.

“There’s clearly a significant and notable shortage of housing inventory across various price brackets and locations.

“Consequently, any decline in homeowner sales is likely counterbalanced by increased demand from renters and investors. This is a trend that is not going away.

“However, it’s crucial to recognise that the situation isn’t consistent nationwide or across different property pricing brackets.

“It’s helpful to delve into subsectors and regional dynamics when assessing opportunities, as a broad market view can be misleading.

“In the real estate sector, we’re seeing significant investment capital for assets for long-term rental.

“On account of their scale and buying power, these typically institutional investors face fewer disruptions than owner occupiers or small-scale buy-to-let investors.

“At Ingenious, we continue to work closely with borrowers and investors, adapting to the dynamic market landscape and broader economic shifts, including those related to the climate crisis and changing lifestyles.

“We are expanding the reach of our development lending product to provide extended stabilisation terms for specialised developers in the rental sector.

“Furthermore, we’re introducing special lending terms for developers focused on reducing embedded carbon in their construction practices.”