Demand continues to fall and surveyors’ price expectations for next 12 month ‘turns negative’ amid concern over mortgage rates

house prices

New buyer demand for homes in the UK fell for the fifth successive month with a negative net balance of -36%, the Royal Institution of Chartered Surveyors has found. 

Fresh instructions to sell have also dropped to “historic lows”, the surveyors reported, with a net balance for new market appraisals dropping to -20%. A minus balance means more surveyors reported a drop in enquiries than reported a rise (see box below).

The monthly forecast also shows that price expectations have now turned negaitive, with a net balance of -18% of respondents execting a dip in prices over the next 12 months compared to +3% last month. 

RICS said survey respondents cited ”the expected further substantial rises in mortgage rates as a factor putting pressure on the market over the year ahead.”

It said the net balance of surveyors reporting house price increases is still postive at +32%, but this has dropped each month since April, when it stood at +78%.

Simon Rubinsohn, RICS’ chief economist, said the “turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market”.  Lenders started to withdraw products after the government’s mini-budget last monthThis month two-year fixed rate mortgages hit a 14-year high.  

Although house price growth is still creeping up, Rubinsohn noted “storm clouds are visible in the deterioration of near term expectations for both pricing and sales”. 

He said it was difficult to know “how this plays out in terms of hard data”, saying it “will inevitably depend in part on the state of the mortgage market once it settles down”. The RICS survey recognised that the limited supply of homes in the UK was still propping up prices but predicted “this looks set to end”. 

Rubinsohn added: “It is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.”

Last month the RICS’ monthly residential market survey showed new buyer enquiries slipped to a net balance of -39% in August, down from -26% the previous month. It was the lowest reading since April 2020 in the midst of the pandemic lockdown. 

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 simply 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%.