Challenging residential market continues but twelve-month picture stabilises: RICS

The latest RICS residential report depicts the continuation of a challenging market backdrop, with interest rates continuing to hamper mortgage affordability.

The headline new buyer enquiries figure reported a reading of -39% in September. Although still consistent with weak demand, the latest reading is marginally less negative than the -46% seen in the August data.

The September results for agreed sales remain mired in negative territory, with a -37% reading reported. That said, this is again slightly less downcast than readings of -46% and -45% seen in August and July, respectively. For the coming three months, respondents continue to envisage a decline in sales volumes, even if the latest net balance moved to -24% from a more negative reading of -36% for the prior month. Twelve-month sales expectations returned a net balance of +3% (up from -5% last time), signalling a much more stable trend in sales volumes emerging over the year ahead.

House prices remain on a downward trajectory at the national level. The September net balance of -69% is barely changed from last month (-68%), signalling the pace that house prices are falling is consistent over the past couple of months. While almost all parts of the UK are witnessing house prices retreat, downward pressure appears most significant across the West Midlands and the South East of England (posting respective net balances of -94% and -91%).

Going forward, near-term expectations point to a further price pull-back over the next three months, although the latest net balance of -48% is not quite as negative as the reading of -65% returned last time around. At the twelve-month time horizon, a national net balance of -33% of contributors foresees prices continuing to fall, although the September reading is slightly less downcast compared to readings of closer to -50% returned through June to August this year.

Tarrant Parsons, senior economist at RICS, said: “With mortgage affordability still incredibly stretched, it is unsurprising that buyer activity across the housing market remained subdued in September. Although the decision to pause monetary policy tightening a few weeks ago provided a glimmer of relief for the market, interest rates are likely now set to remain on hold for a prolonged period. As such, it appears there is little prospect of trends deviating much from the recent picture in the immediate future. The latest RICS residential report depicts the continuation of a challenging market backdrop, with interest rates continuing to hamper mortgage affordability.That said, the outlook a little further ahead has improved slightly, with twelve-month sales expectations moving out of negative territory for the first time in several reports.”

Jeremy Leaf, north London estate agent and former RICS residential chairman, commented: "The usually reliable RICS sentiment index remains in ’Eeyore’ mood yet the gloomy outlook for the next three months is no surprise.

"Our offices are finding lower mortgage rates are helping to generate more viewings, particularly for smaller family houses, but they are not falling fast enough yet to make a significant difference to sluggish activity.

"However, buyers are not having it all their own way. Bearing in mind approximately four out of five sellers are also trying to purchase, most are resisting attempts to make any more than modest price reductions to avoid chains collapsing.

"Looking forward, there is optimism that the cost of living – including mortgage rates – will bottom out shortly and encourage more effective demand in the early part of 2024."

Tomer Aboody, director of MT Finance, added: "There are welcome indicators that the market is stabilising with more confidence among buyers and sellers prompted by the Bank of England’s decision to hold interest rates.

"However, we are not out of the woods just yet with a number of fixed-rate mortgages set to come to an end in coming weeks and months. Those borrowers still face a significant payment shock, even though it may not be as bad as it could have been just a few months ago.

"Unfortunately, for those who can’t cope with the increased payments, we are likely to see more properties come to market, with these forced sales impacting house prices."