UK homebuyer demand slumps as borrowing costs spiral

[LONDON] The number of Britons looking to buy a home nosedived in March after the mortgage market was rocked by conflict in the Middle East, according to the Royal Institution of Chartered Surveyors (RICS).

Its gauge tracking new buyer enquiries plunged to the lowest since August 2023, with agreed sales mirroring the deterioration.

Estate agents on balance expect reduced sales and declining house prices over the coming months after average fixed mortgage rates surged back above 5 per cent.

The survey points to a subdued spring for a housing market that had started the year on a positive footing.

Many lenders rushed to withdraw mortgage products and ramped up interest rates amid speculation the Bank of England (BOE) will act to contain the threat from an inflation resurgence triggered by Iran blocking of a crucial shipping route for global energy supplies.

While money market bets on BOE rate increases eased markedly on Wednesday (Apr 8) in response to the tentative ceasefire agreed by the US and Iran, buyers are likely to face elevated borrowing costs for some time.

“The mood across the UK housing market has shifted markedly over the past couple of months,” said Tarrant Parsons, RICS’ head of market research and analysis.

“What had been a cautiously improving picture for activity has been knocked off course by the wider macro fallout from the Middle East conflict,” he added.

RICS said that near-term sales expectations turned “significantly more pessimistic”, with its index falling to a net balance of minus 33 from minus four.

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Price expectations for the coming three months tumbled to minus 43 from minus 19. A negative reading means surveyors expect a deterioration to outnumber those who see an improvement.

RICS said that most parts of the country had seen a noticeable drop in buyer demand, while pressure on house prices was strongest in London, East Anglia and southern England.

By contrast, agents in Scotland and Northern Ireland continued to report rising prices.

“A tough market where pricing is absolutely critical,” Alex Howard Baker, from a branch of Savills in south-west London, said in comments accompanying the RICS report. “The situation in the Middle East and the interest-rate uncertainty created have stalled an already difficult market.”

Industry indicators have shown a diverging picture since the war started on Feb 28, when the US and Israel jointly attacked sites in Iran.

Average house prices fell 0.5 per cent in March, according to Halifax data released on Wednesday.

However, that contrasted with Nationwide Building Society figures pointing to a sharp rise over the same period. BLOOMBERG