Buyers hold their nerve despite market turmoil

While the news is awash with reports of a ‘mortgage shock’ and impending ‘mortgage time-bomb’, one might expect surveyors to be sitting around twiddling their thumbs - far from it though.

Echoing the sentiment of the latest Royal Institution of Chartered Surveyors’ (RICS) Residential Market Survey, our surveyors are seeing demand for their services holding steady from buyers and sellers.

RICS’ May report shows that while the net balance for new buyer enquiries remains in negative territory at -18%, it is the least negative reading over the past twelve months and represents a considerable gain on April’s -34%.

It is a similar story for agreed sales, with the indicator returning a net balance of -7%, compared to -29% and -18% seen back in March and April. The latest net balance for near-term sales expectations also exhibited the least pessimistic view from surveyors since May 2022, with a steady sales outlook expected.

Yes, new properties are taking longer to sell and sellers are pricing realistically but we are yet to see the increased pressures around affordability filter through into the market.

The slight falls in house prices we have seen, and I emphasise slight - just £82 in terms of asking prices in the first few weeks of June, according to Rightmove - I suspect are more to do with an increased number of properties coming to market, rather than issues around mortgage affordability.

While that will inevitably come in time, we are currently seeing a slight increase in choice for buyers, which in turn is creating a more competitively-priced landscape.

We have somewhat of a two-tier market. Due to the increased mortgage costs, there will be a whole swathe of borrowers who will be at a critical stage financially. Consequently, there will undoubtedly be genuine concerns amongst lenders over a potential increase in arrears and repossessions plus the extra provisions that go along with that.

The latest Nationwide Spending Report shows borrowers are continuing to spend and if anything, increasing their spending, in areas such as hospitality.

The realism of the increase in forthcoming mortgage payments will yet to have sunk in for many homeowners, with around two-fifths of borrowers having yet to experience any increase in costs.

Yet for some, life will carry on much the same, with buyers prepared to pay the increased rates currently being asked by lenders.

It is also worth remembering that we have only recently ventured out from an exceptionally busy housing market, where we saw house prices increase 10% in just twelve months. So, any falls and slowdown in activity we see in today’s market should be looked at in this context.

We are in many ways just in a natural cycle and correction stage of the market. Rightmove reports the number of sales being agreed has dropped marginally in the last two weeks but is still only 6% behind the pre-covid ‘normal’ market of May 2019. While buyer demand over the last two weeks is actually 6% higher than the same period in 2019.

Even before we get to the place where affordability is affecting house prices and demand, we will see buyers diversify into smaller properties, which we are starting to see to some extent but not on a significant scale.

The scales are also still tipped in sellers’ favour, due to the ongoing shortage of housing. A recent Centre for Policy Studies think tank laid bare the problem in a report published in The Telegraph. It stated England alone needs 616,000 extra homes each year to accommodate record numbers of migrants.

The number of new homes required to accommodate the record number of people coming to the country would need to be more than double the Government’s 2019 manifesto target of 300,000 a year, were it not for the fact that the Government has effectively ditched this, and we are nowhere near those figures anyway.

There is still more demand than properties for sale and this is not going to change anytime soon.

Stubbornly high inflation and increasing interest rates one would think will start to dent buyer demand soon, but for now at least; the housing market continues to hold steady.