Buyer demand and agreed sales improve after summer lull, claims RICS

Estate agents could get busier in the coming months but house prices remain under pressure, the latest data from the Royal Institution of Chartered Surveyors (RICS) suggests.

The RICS August Residential Market Survey shows that while buyer demand and agreed sales remained negative, both indicators moved away from their record lows.

The net balance for new buyer enquiries rose to -19%, its least negative reading since January and fifth consecutive improvement. Agreed sales recorded a net balance of -17%, the least negative result since February and an improvement from April’s low of -38%.

Expectations for sales in the next three months moved closer to neutral territory, with a net balance of -3%, up from -13% in July. Looking 12 months ahead, a net balance of +6% of respondents anticipated higher sales volumes, compared with +3% previously, pointing to a modest improvement in confidence.

House prices remained under downward pressure though. The headline price net balance edged up to -28% from -29% in July, extending a gradual improvement from April’s -35%. Respondents still expected price reductions in the next three months, with a broadly stable outlook in the next 12 months.

August’s results show a market that is gradually finding its footing, with key activity indicators having become progressively less negative.”

Regional differences have persisted. London’s price balance remained more negative than the headline average, although it improved on July. Northern Ireland continued to report rising prices, while the North West of England maintained a period of gentle price growth, RICS said.

The flow of new sales listings was broadly unchanged, with the new instructions net balance at zero, compared with -2% in July. A market appraisals balance of -17% indicated weaker activity than a year earlier, suggesting limited scope for a near-term expansion in the listings pipeline.

In the lettings market, rising tenant demand and constrained supply continued to put upward pressure on rents. The monthly tenant demand net balance stood at +18%, while landlord instructions remained negative at -14%, RICS said.

The net balance of respondents expecting rents to rise in the next three months increased to +44%, from +33% in July. In the next 12 months, respondents expected rents to increase by around 3% on average.

Tarrant Parson, RICS Head of Market Research and Analysis, (pictured), says: “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.”

Industry reaction

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “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.”

“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.”

Rachel Springall, finance expert at Moneyfactscompare.co.uk, says: “Rents are expected to rise by around 3% over the next 12 months, adding to the cost of living pressures for renters.

“Tenant demand is getting stronger at the same time new buyer enquires are weak, and looking ahead, sales listings are not expected to materially change over the short term.

“Affordability issues are glaringly obvious amid the lack of more affordable housing, yet this is not helped at a time where mortgage rates are rising.

“There will be some prospective buyers deciding it is a safer bet to continue in the private rental market for now, but with the RICS landlord instructions indicator remaining in negative territory, there is the obvious danger that tenant demand continues to outstrip supply, putting prolonged upward pressure on rents.”