The housing market showed further signs of stabilising in August, but uncertainty over interest rates continues to hold back a stronger recovery.
Buyer demand and agreed sales both improved from recent lows, according to the latest RICS UK Residential Market Survey.
However, both measures remained in negative territory.
The net balance for new buyer enquiries improved to -19%. That was the least negative reading since January and marked a fifth consecutive monthly improvement.
Agreed sales also strengthened, with the net balance rising to -17%. That compares with a recent low of -38% in April and represents the strongest reading since February.
Meanwhile, expectations for sales over the next three months moved closer to neutral.
The net balance improved from -13% in July to -3% in August.
Looking further ahead, +6% of respondents expect sales volumes to increase over the next 12 months. That compares with +3% previously.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “In our offices, a modest uptick in demand has coincided with holiday returnees re-starting property searches, albeit not in the same volume as this time last year.
“Buyers and sellers are finding it difficult to shrug off worries about the impact of the protracted war in Iran on the cost of living and mortgage rates in particular. Speculation about the impact of the Budget on taxes is adding to buyer caution.”
Tom Bill, head of UK residential research at Knight Frank, commented: “After a spring slowdown driven by higher mortgage rates, demand has stabilised as borrowing costs reset and the government avoids fuelling the sort of pre-Budget speculation that has put buyers off in recent years. Prices are largely moving sideways but activity could be sustained through the autumn provided the Budget doesn’t reignite a mood of uncertainty.”
House prices remain under pressure
Despite improving activity indicators, house prices continued to face downward pressure.
The headline price balance edged up from -29% in July to -28% in August. However, it has gradually improved from -35% in April.
Survey respondents still expect prices to fall over the next three months. The 12-month outlook remains broadly flat.
Regional differences also remain significant.
London recorded a more negative price balance than the national average, although conditions improved from July.
By contrast, respondents in Northern Ireland continued to report rising prices. The North West of England also maintained modest price growth.
There was little change in the supply of homes coming onto the sales market.
The new instructions balance stood at zero, compared with -2% in July.
Market appraisal activity also remained weak. The balance of -17% indicates fewer appraisals than a year earlier.
That suggests the sales market is unlikely to see a significant increase in new listings in the near term.
Rental pressures build
Conditions in the lettings market remained markedly different.
Tenant demand continued to rise while landlord supply remained constrained.
The monthly tenant demand balance stood at +18%. Meanwhile, landlord instructions recorded a negative balance of -14%.
As a result, expectations for further rent increases strengthened sharply.
The balance of respondents expecting rents to rise over the next three months jumped from +33% in July to +44% in August.
Over the next 12 months, respondents expect UK rents to increase by around 3% on average.
Leaf added: “Continuing uncertainty in the sales market has resulted in more lettings activity with tenants taking advantage of their new ability to end fixed-term constraints under the Renters’ Rights Act.
“Rents have held firm, supported by supply shortages, especially of larger flats and family houses, as exiting landlords are not being replaced fast enough so standards are slipping too.”
Bill said: “Rising rental values reflect one of the unintended consequences of the Renters Rights Act. Landlords are setting higher asking rents to reflect the greater risks they face around void periods and rent collection, against the backdrop of lower supply.”
Recovery remains fragile
RICS head of market research and analysis Tarrant Parsons said: “August’s results show a market that is gradually finding its footing, with key activity indicators having become progressively less negative over recent months. That said, any potential recovery remains fragile and faces two significant near-term tests.
“The Bank of England’s increasingly hawkish tone, on the back of renewed volatility in global energy markets, is a reminder that the borrowing cost outlook could yet deteriorate further. And with the October Budget approaching, speculation over potential changes to property taxation is adding another source of caution for both buyers and sellers. As such, headwinds over the shorter term remain pronounced, even though recent market trends have appeared more stable.”
