A recent survey by the Royal Institution of Chartered Surveyors (RICS) indicates that prospective home buyers in Britain have significantly reduced their activity in the property market. This decline is seen as a consequence of higher borrowing costs impacting affordability.
The RICS house price index fell to minus 46% in June, down from minus 30% the previous month, which is 11 points below economists' expectations. Additionally, the gauge of new buyer interest dropped 25 points to minus 45%.
These figures suggest a rapid cooling in the housing market following substantial price gains during the pandemic, where the average home value increased by a quarter. The Bank of England's aggressive interest rate hikes since the end of 2021 have raised mortgage costs to levels not seen since the global financial crisis over a decade ago.
Simon Rubinsohn, chief economist for RICS, believes that activity levels will remain subdued, noting that house prices have only modestly declined from their recent highs but are still significantly above pre-pandemic levels. He suggests that further price declines are possible, but the lack of properties available for sale, particularly in London, is helping to maintain current values.
The RICS report, which assesses surveyors' views on properties listed for sale, provides a forward-looking perspective compared to official Land Registry data on completed transactions or figures from mortgage lenders. The indicators now suggest falling prices, albeit not as steep as the 10% decline anticipated by economists at the beginning of the year.
Rising mortgage rates and concerns about the cost of living have prompted many potential buyers to adopt a cautious approach, leading to softened sales prices. The negative publicity surrounding the market is also starting to lower seller expectations.
RICS reported that new sales instructions remained steady, and the average stock level for estate agents increased slightly to 37.4 properties. However, the number of homes available for purchase remains historically low, despite a slight increase compared to the end of last year.
The outlook for the next three and twelve months remains negative, with the exception of Northern Ireland and Scotland. In Scotland, a rent freeze and temporary suspension of evictions are benefiting distressed residents, with the moratorium set to remain in place until March 2024.
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