UK home sales seen taking short-term hit as war damps sentiment

[LONDON] British estate agents are growing increasingly pessimistic about the housing market, a survey found, as war in the Middle East dashes hopes of lower borrowing costs.

The Royal Institution of Chartered Surveyors (RICS) said that its index tracking expected sales in the next three months turned negative in February, reaching the lowest level since November. The outlook for prices also deteriorated. The survey was conducted between Feb 23 and Mar 9, covering the period after the US and Israel launched their attack on Iran on Feb 28.

The conflict has prompted speculation that the Bank of England could be forced to raise interest rates to combat an oil-driven inflationary surge.

RICS called the prospect of higher-for-longer rates a “significant headwind” for a market that had been showing signs of a turnaround amid hopes the central bank would deliver another one or two more rate cuts this year.

Agents said that the war is already having a significant impact on activity. RICS’ measure of new buyer inquiries plunged deeper into negative territory in February, reversing slightly more positive trends at the start of the year.

“Office has been getting busier over the last few weeks,” Ann Rachel Gascoine, a surveyor in Nottinghamshire, said in comments accompanying the report. “It has been dead since the Iranian fighting started.”

A separate Barclays report this week showed household sentiment dropping to a four-month low as consumers brace for higher energy bills.

Agents still see house prices increasing over the next 12 months, albeit those expectations have moderated slightly.

The change is most dramatic in London, where the RICS’ index dropped to seven in February from 56 the month before. It suggests agents expecting an increase in London prices now barely outnumber those forecasting a decline.

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Mark Wood, at Blues Property in Cambridge, said that he expects the market will stagnate. “Now with oil prices already increasing, the hope of interest rate drop have disappeared,” he said. BLOOMBERG