RICS: market declines more slowly, but optimism is premature

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the RICS UK Residential Market Survey, showing market declines more slowly, but optimism is premature.

Key points from publication:

• • Buyer demand fell again – for the tenth consecutive month, the number of sellers was down from January, and agreed sales declined – but all of them were falling less slowly than in previous months.
  • House prices fell, and agents expect them to trend lower over the next 12 months.
  • The average time to complete sales has risen to almost 19 weeks.
  • 60% of homes worth up to £500,000 are selling for less than the asking price – for homes worth between £500,000 and £1 million that rises to 70%.
  • The number of tenants continues to grow, while landlords keep leaving the market – albeit slightly slower than before. Rents are expected to keep rising.

Sarah Coles says:

“Things are getting worse more slowly, but while the agents in the RICS report are finding reasons for optimism, this may be premature.

“Buyer and seller numbers continued to drop, agreed sales fell, and prices were on their way down. In order to shift properties, most people are now having to accept an offer. Despite pockets of enthusiasm, these aren’t signs of a rising market.

“When you add in the Bank of England’s figures showing rock bottom levels of mortgage approvals in January, it means we may well see more decline in the months to come.

“The report highlighted the impact of stretched mortgage affordability, and to make matters worse, there have been subtle changes in the mortgage market which could make life even more difficult.

“After months of rates slowly falling from the peak, we have seen some of the most competitive deals pulled from the market. Rate expectations are shifting slightly, as there are growing concerns that higher inflation might last for longer than expected.

“This is moving the swaps market very slightly, making it more expensive for mortgage lenders to price a fixed rate – so that some of the best deals are off the table.

“This hasn’t moved the dial on average rates yet, but is one to watch. 

“This is not only putting pressure on buyers, but higher mortgage rates could mean more forced buyers as time goes on.

“For remortgagers, rates are way ahead of their levels back when they last fixed. As a result, the HL Savings & Resilience Barometer shows that remortgaging will eat up an extra 3.1% of their income – which is the equivalent of an 80% rise in their energy bills. It means 2 million people will be spending so much of their income on the mortgage that they’re at risk of falling into arrears.

“Looking at their wider resilience, 650,000 of them don’t have the savings to protect them from this attack on their household budgets.

“With nowhere to go, we could see them flood the market and push prices down.

“For renters, meanwhile, there’s no let up.

“While the number of landlords leaving the market has slowed, they’re still packing up and heading out – while tenant numbers continue to grow.

“It means more rent rises are on the horizon – which isn’t just miserable for renters, it also bodes ill for the stickiness of inflation.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay