New house enquiries and sales continued to decline and house prices fell again last month, according to the Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey for July 2023.
The organisation said the “tighter lending environment” continued to “weigh heavily” on home buyer activity and near-term expectations remain negative.
Nationally, new buyer enquiries were -45% and a net balance of -44% of respondents noted a decline in agreed sales during July – the weakest reading for the sales measure since the early stages of the pandemic.
Near-term sales expectations remain subdued, posting clearly negative reading of -45% in July – substantially weaker than the respective net balances of -38% and -11% in June and May.
The lettings market remains strong, with tenant demand rising over the three months to July evidenced by a reading of+54% of respondents citing an increase – the strongest quarterly pick-up in rental demand since the start of 2022.
Simon Rubinsohn, RICS chief economist, said: “The recent uptick in mortgage activity looks likely to be reversed over the coming months if the feedback to the latest RICS Residential Survey is anything to go by. The continued weak reading for the new buyer enquiries metric is indicative of the challenges facing prospective purchasers against a backdrop of economic uncertainty, rising interest rates and a tougher credit environment.
“Just as concerning are the insights being provided around the lettings markets. Demand shows no signs of letting up, supply remains constrained and that means rents are likely to continue rising sharply despite the cost-of-living crisis.”
Tom Bill, head of UK residential research at Knight Frank, said: “It has been a volatile transition back to normality for interest rates, which has compounded the downwards pressure on house prices and sales volumes over the last year. The previous government went too far, too fast for financial markets and the Bank of England has been accused of doing too little too late.
“However, some lenders are cutting mortgage costs as the bank rate nears its peak, which means that while sentiment will remain subdued, it should improve in the second half of this year. While we expect UK prices to fall by 5% in 2023, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, flexibility from lenders and the popularity of fixed-rate deals in recent years.”
Terry Woodley, MD of development finance at Shawbrook, added: “Buyer confidence continues to be stifled by interest rate rises and challenging economic headwinds. As demand becomes subdued, developers are adapting their business models.
“Our research indicates that 39% of developers are diversifying their strategies and focussing on different types of schemes which may include the likes of build-to-rent and houses in multiple occupation (HMOs) to adapt to the lessening demand from buyers. The most resilient investors will seek new opportunities to capitalise on and its crucial they work with a funding partner who can adapt with them.”
