RICS’s monthly survey of agents shows weakening demand while central bank puts rates up to 4.5%
High borrowing costs and an uncertain economic outlook are stifling momentum in the UK housing market, RICS has said, in a report released in advance of the Bank of England’s decision to raise borrowing rates further this lunchtime.
According to the RICS’s April residential survey, new buyer demand was down to –37% on its index, a slump against the –30% reading recorded in the past two reports.
The reoprt came ahead of the Bank of England’s widely expected decision to put the base rate up by 0.25 percentage points to 4.5%, its twelfth consecutive rise taking rates to their highest level since 2008.
RICS said buyer demand was not quite as downbeat as the –43% figure posted in January, but was consistent with a renewed drop in buyer enquiries.
Almost all regions of the UK experience negative or flat home buyer demand, except Northern Ireland which saw a marginal rise.
RICS chief economist Simon Rubinsohn said: “Although the newsflow around housing does appear to have steadied over the past month, key indicators from the RICS survey point to a series of challenges in both the sales and lettings space.
“Most notably, 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.”
The Bank of England today issued its 12th successive increase in base interest rates to 4.5%, would bring them to their highest level in almost 15 years.
Rubinsohn said there remained a stark imbalance between demand and supply in the letting market despite significant rent rises and that increased supply would be “critical to addressing both areas of the market”.
“However, indicators of the level of new housing starts in the early part of the year suggests that the picture is if anything continuing to soften as housebuilders activity reflects both macro uncertainty and policy developments,” he added.
RICS UK Residential Market Survey explained
The RICS UK Residential Market Survey is a monthly sentiment survey of chartered surveyors who operate in the residential sales and lettings markets. Surveyors are asked 18 questions on a range of metrics such as sales, enquiries, listings and house prices and are asked whether these have increased, stayed the same or decreased.
The ‘net balance’ refers to the proportion of respondents reporting a rise in a metric minus those reporting a fall.
For example, if 30% reported an increase in buyer enquiries and 5% reported a fall, the net balance would be +25%.
Survey respondents cited an overall flat picture for new supply April, with the net balance declining slightly to –4% from –6% in March.
House prices remained in negative territory (-39%) but were an improvement on the –43% and –47% recorded in previous months.
Price expectations over the next few months are improving on the lows of last year, with the net balance up to –16% from March’s –24%.
Matt Smith, mortgage expert at online property portal Rightmove, said the change in the base rate was unlikely to prompt immediate action from mortgage lenders. He said: “Over the last couple of weeks, average fixed-rate mortgages have been slowly edging up in anticipation of today’s rise of 0.25% in the Bank of England Base Rate.
“There is unlikely to be any immediate changes in lender rates based on today’s decision, and lenders are instead likely to wait to see what the impact of the Bank’s comments on the outlook of the economy have on swap rates. An average five-year fixed 85% Loan-To-Value mortgage rate is now 4.52%, up from 4.44% last week.”
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