RICS: Higher rates will be bad news for renters and buyers
Sarah Coles, head of personal finance at Hargreaves Lansdown comments on the publication of the RICS Residential Market Report, showing higher rates will be bad news for renters and buyers.
Key points from publication:
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- In May, buyer demand, house prices and agreed sales fell again – although not as badly as previously.
- New instructions were up for the first time since early 2022. The average agent has 38 properties on their books – the long-term average is 40.
- Yet again, we saw more tenants and fewer landlords in May, as higher interest rates persuaded more buy-to-let landlords to sell up.
Sarah Coles says:
“May was the calm before the storm, and even that was pretty dreary – with demand, house prices and sales falling.
“Mortgage rate hikes in the past two weeks will pile on more misery for the property market in the months to come, depressing demand and stifling sales.
“But it’s not just sellers who face a wretched summer, rising rates will also bring more grief for renters too.
“As Shakespeare almost said: ‘rough winds were indeed shaking the darling estate agent boards of May’.
“We saw demand decline yet again: it has been sliding relentlessly for well over a year now. This fed through into lower sales figures, and lower prices.
“Buyers were stymied by a toxic combination of runaway inflation and higher house prices, and they were concerned about what might lie ahead.
“When it comes to interest rates, they had every reason to worry.
“Towards the end of the month, the Bank of England revealed that inflation was stickier than had been expected, which rapidly raised interest rate expectations.
“These have been feeding through into higher fixed-rate mortgages ever since.
“The average 2-year fixed mortgage is now around 5.75% – up from around 5.3% before the inflation figures were announced.
“There’s every chance this will persuade buyers that this isn’t the climate to buy in.
“Halifax figures out yesterday showed house prices were flat in May, while Nationwide figures showed them falling.
“At times like this, buyers may think there’s less risk in waiting to see what happens to rates and prices before taking the plunge.
“Given that rates are expected to remain higher for months, this could seriously dent the market as we go through the rest of 2023.”
Rental market:
“Higher mortgage rates are also hitting the beleaguered rental market.
“Reports from the agents read as increasingly desperate cries for help, as the imbalance in the market gets worse with each passing month.
“Landlords have been selling after concluding new legislation was too expensive to comply with, and they’ve now been joined by a swathe of buy-to-let lenders, who realise that, once they remortgage, higher rates mean the maths no longer adds up.
“Two-thirds of agents say more buy-to-let landlords are trying to sell.
“At the same time, more would-be-first-time-buyers are likely to sit things out for a while, to see what happens next to prices and mortgage rates.
“They may well be joined by owners who decide to sell and rent for a while.
“This is likely to lead to a surge in demand, and make it even more difficult to find an affordable rental property.
“Rents are rising rapidly, and RICS expects these increases to average 6% in the coming years.
“Given that rent absorbs a far bigger chunk of people’s incomes than mortgages, these hikes will add insult to injury.
“It’s going to make it even more difficult for renters to stay on top of their finances, let alone to get a property deposit together and escape the rental trap.”
Kindly shared by Hargreaves Lansdown
Main article photo courtesy of Pixabay
