Mortgage affordability is continuing to affect the property market, with nearly all parts of the UK seeing house prices retreat, according to surveyors.
The Royal Institution of Chartered Surveyors (RICS) said its report for September shows the continuation of a challenging market backdrop, with interest rates continuing to hamper mortgage affordability, and the disparity between tightening lettings supply and rising demand causing rental price rises.
“The usually reliable RICS sentiment index remains in ’Eeyore’ mood yet the gloomy outlook for the next three months is no surprise,” said Jeremy leaf, a north London estate agent.
While lenders are beginning to offer more competitive mortgage rates, market activity is still “sluggish” and house prices in London have fallen the most of any region.
Buyers are not having it all their own way.
“‘However, buyers are not having it all their own way,” cautioned Leaf. “Bearing in mind approximately four out of five sellers are also trying to purchase, most are resisting attempts to make any more than modest price reductions to avoid chains collapsing.”
There was relief last month when the Bank of England held interest rates at 5.25 per cent after 14 consecutive rate hikes, but affordability is still a major issue said some agents.
”It did little to assuage buyer concerns,” said William Delaney of Coopers of London estate agents.
“Pessimistic forecasts dominate the news, and vendors are often having to consider significant discounts to agree a sale. Offers based on similar reductions would have been dismissed out of hand 12 months ago.”
Across the UK, 39 per cent of property surveyors reported new buyer inquiries falling rather than rising in September. Similarly, 37 per cent reported a fall in sales.
“We have not seen the usual September increase in demand,” said Allan Henry Fuller of Allan Fuller Estate Agents.
“Sales have slowed but sensibly priced property is attracting interest, still too many agents suggesting high prices to get instructions.”
Many tenants wishing to buy instead should create a natural market,”
Buyers reliant on mortgages are struggling the most, which has a knock-on effect on the types of properties that are selling.
“[The] higher end of the market driven by cash buyers is more active, while one-bed flat sales are stalling,” said Francisco Javier Lauret-Aguirregabiria of Hurford Salvi Carr estate agents.
But with London rents rising by 12 per cent on average this year, there are many potential buyers who are desperate to get out of private rented accommodation.
“There are still many focused sellers wishing to move by year’s end and many tenants wishing to buy instead, which should create a natural market,” said Christopher Ames of Ames Belgravia estate agents.
We think most of the correction will happen this year
While the combination of lower house prices but higher mortgage rates keeps the market at a temporary impasse, agents are hopeful that by 2024 the landscape will start to improve.
“ Viewing numbers have trebled and offers have increased,” said John King of Andrew Scott Robertson. “Whether this is short lived remains to be seen.”
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “A sense of predictability is returning to the UK housing market, which means buyers and sellers can better come to terms with higher mortgage rates.
“House prices will continue to come under pressure, but we think most of the correction will happen this year as demand hardens.”
The RICS survey found that surveyors expected sales to increase 3 per cent in the next 12 months, whereas in August they were forecasting a decline of 5 per cent.
Tenants may be reaching an affordability ceiling as enquiries and many are refusing to keep paying more.
In the lettings market, unlike the sales market, demand is continuing to rise, the report said.
A net balance of 43 per cent of professionals saw an increase in tenant demand in the rental market in September.
Meanwhile, the feedback around landlord instructions continues to highlight a scarcity of listings becoming available in the lettings sector, the report said.
“The ongoing shortage of rental property means that asking prices and offers keep going up,” said Will Barnes of Tate Residential’s Kensington branch.
Given this backdrop, rents are expected to be squeezed higher, with professionals suggesting close to 5 per cent growth in rental prices across the UK on average over the next 12 months.
But in London, where rents are already sky high, there is doubt that renters could be pushed much further.
“There is no doubt record rents are helping to support house prices as well as persuade some aspiring first-time buyers to pay their mortgage rather than the landlord’s,” said Leaf.
“Tenants may be reaching an affordability ceiling as enquiries are reducing and many are refusing to keep paying more.”
