Our Opinion: 2023
Could the UK’s downbeat property market now be stabilising?
The latest data from the Royal Institute of Chartered Surveyors indicated the market could recover this year. Whilst the UK’s housing market remains weak, their latest report suggests green shoots of growth are appearing.
Last month the RICS reported that buyer demand had fallen to its weakest level since 2009 as higher mortgage rates and the increased cost of living prompted buyers to reconsider whether now was a good time to buy a house. However, the headline reading for new buyer enquiries rebounded from -45% in January to -29% in February. Despite being the tenth consecutive negative monthly reading, it’s also the least negative result since July 2022.
RICS Residential Market Survey’s net balance data ranges from -100 to +100 and measures the difference between the percentage of surveyors seeing rises and falls in markers such as house prices, new sales, and new buyer enquiries. The new sales indicator also rebounded in February, from -36% in January to -26%. But the headline price balance fell to its weakest level since April 2009, to -48% from -46%, indicating more surveyors are seeing falling house prices.
Given the ongoing weakness in demand, house prices remain on a downward trajectory, and are expected to see further falls through the first half of the year at least.
Despite the modest improvement in market sentiment, the RICS Residential Market Survey suggests buyers are pushing sellers hard on house prices. Around 60% of responders said prices were being agreed at below the asking price on properties of up to £500,000. That jumped to 70% for asking prices on properties priced between £500,000 and £1,000,000.
But it did point out the “majority of feedback” pointed to sales being agreed within 5% of their asking price, rather than anything significantly greater.
Other house price indexes have reported similar trends.
Online property portal Zoopla recently said sellers are having to accept an average discount to asking price of 4.5% as buyers push for better deals. Meanwhile, Rightmove said asking prices edged up only £14 in January, despite it being a traditionally busy time for the market.
According to Zoopla rents across the UK are at record highs, and the data from RICS shows this is unlikely to change in the near term. A net balance of +32% respondents reported an increase in tenant demand following a reading of +43% in January, while landlord availability remained tight.
Given the supply and demand imbalance +45% of those surveyed expect rents to increase.
With rising rents and diminishing housing stock in the private rental sector, the government must do more to support landlords who are leaving the market due to increasing cost and regulation challenges.
Landlords continued to raise concerns with RICS on the lack of clarity and financial support from government to meet expensive energy efficiency improvement targets which is further pressuring landlords into exiting the sector.
What next for the UK property market?
The fall in the headline price balance to its lowest level since 2009 was slightly better than expectations. But despite there being some green shoots of optimism, the housing market is still slowing with expectations for prices to fall further this year as the macroeconomic headwinds weigh.
The market has been grappling with rising mortgage rates, the cost-of-living crisis, sluggish economic growth and falling real wages. The economic uncertainty with the revival of inflation post-pandemic and the war in Ukraine has resulted in many would-be buyers holding off in anticipation that the mortgage rates and house prices will fall further this year. The latest data from Halifax showed house prices increased unexpectedly by 1.1% in February. On the other hand, Nationwide reported house price growth was at its weakest since 2009. While their findings are different, indexes seem to agree house prices will continue a downward trend in 2023.
Mortgage rates remain elevated and are unlikely to fall back. Additional cost of living pressures are unlikely to go away any time soon. Inflation remains in the double digits, largely due to elevated food and energy costs, eroding into buyers’ purchasing powers and hindering first time buyers’ ability to save for a deposit.
28th March 2023
