Rising mortgage rates continue to knock the housing market, a gloomy poll of RICS surveyors shows.

New buyer enquiries were down 45% last month, following a similar drop in June, with all parts of the UK affected by the downturn.

Agreed sales in July were down 44%, which is the weakest since the early stages of the Covid pandemic, according to the RICS residential survey.

Expectations of sales have turned increasingly subdued, posting a clearly negative reading of -45%. New instructions’ net balance slipped to -13% in July, compared to -3% in June.

Rents rise

In the lettings market, tenant demand rose firmly over the three months to July shown by a reading of +54% of respondents citing an increase.

Set against this, landlord instructions declined once again, with the latest net balance falling to -30% from -24%.

Rental prices are set to increase over the coming three months, according to 63% of respondents.

Uptick

Simon Rubinsohn, chief economist at RICS, says: “The recent uptick in mortgage activity looks likely to be reversed over the coming months if the feedback to the latest RICS residential survey is anything to go by.

“The continued weak reading for the new buyer enquiries metric is indicative of the challenges facing prospective purchasers against a backdrop of economic uncertainty, rising interest rates and a tougher credit environment.”

He says it is worrying that rents look certain to increase further despite the cost of living crisis.

“Supply has risen in some areas as owners…choose to let out their property”

Tom Bill, head of UK residential research at Knight Frank, strikes an optimistic note: “Supply has risen in some areas as owners who have failed to sell for the asking price choose to let out their property until there is more momentum in the sales market.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “This report bears out to some degree what we’ve been seeing on the ground.

“Activity has been compromised by continuing cost-of-living concerns and interest rates staying higher for longer but there’s now an expectation that both may be at or near their peak.

“As a result, we’re starting to see more determination to buy, but not overpay, particularly from first-time buyers suffering from ever-increasing rents, and a general belief that the extent of the market’s likely decline in some quarters may have been exaggerated.”

Tomer Aboody, director of property lender MT Finance, says: “As affordability becomes even more of a strain due to higher rates, sales are slowing as buyers wait to see what the Bank of England does next and whether mortgage lenders are prepared to become more flexible.

“The next few months will be telling, as we have potentially reached the peak in base rate and it will then be down to what role banks and government assistance plays in bringing back positivity to the market.”