UK housing market shows signs of downturn ending

SIGNS are emerging that the dip in the UK housing market may soon reverse, according to a closely watched report from property appraisers.

The Royal Institution of Chartered Surveyors’ (RICS) survey of its members showed that year-ahead sales expectations rose to a net balance of 3 per cent in April from 1 per cent a month earlier.

A lack of housing supply is helping to prop up the property market and drive rental costs higher, respondents said. That will add to concerns about the affordability of buying a home as soaring interest rates and inflation squeeze the spending power of consumers.

The findings published on Thursday (May 11) suggest that property prices may become a key battleground in the general election due next year. The ruling Conservative party is divided about whether to loosen planning rules and allow more construction; the government scrapped a target to deliver 300,000 new homes a year under pressure from some of its members, who are resisting development in their constituencies. 

Delivering more supply is “critical”, said RICS chief economist Simon Rubinsohn.

Senior public affairs officer Samuel Rees added that supply “is one of the biggest challenges to housing in the UK”.

“Last week’s local election results saw the government face severe defeats, with several senior Conservative politicians calling the government watering down of homebuilding target a mistake and a contributor to their electoral performance,” he said. 

House prices in the UK are still declining, according to the RICS survey. But the net balance of respondents reporting a decline, at minus 39 per cent, was better than seen in March and February. 

Mortgage lenders who compile their own data on the housing market have diverged this year on just how bad the picture is. While Halifax has been more optimistic, Nationwide has pencilled in greater declines.

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There were indications that the market is still being weighed down by high inflation and rising borrowing costs. New buyer demand, in terms of net balance, was down from minus 30 per cent to minus 37 per cent.

But agreed sales for April, while still at a negative net balance, improved and recorded their best reading since July 2022.

New instructions from sellers were little changed month on month, indicating the constraints on supply. But the recent decrease in demand for homes, following a jump in mortgage costs, meant there was a slight increase in the number of properties held on estate agents’ books. The average inventory per agent is now 36, up by one from February and March.

“Buyer demand still appears to be subdued in the face of relatively high borrowing costs, the prospect of at least one more interest-rate hike and ongoing affordability challenges,” said Rubinsohn.

Respondents to the RICS survey said buyers are increasingly looking for smaller, more affordable homes. Sellers are moving out of older homes in search of more energy-efficient new properties. 

But poor supply is driving up costs in the rental market. A net balance of 41 per cent of respondents said tenant demand had risen in the three months to April, while landlord instructions of agents were also falling. 

Rees said RICS is becoming “increasingly concerned about the pressures facing the rental market”.

“We are calling on the government to reinstate its housebuilding target to drive supply and give confidence to the market that new homes are coming,” Rees said. “The government needs to ensure that proposed reforms to the rental market are delivered in such a way that it increases support for landlords and tenants and maintains and grows supply.” BLOOMBERG