The Royal Institution of Chartered Surveyors (RICS) is expecting a rocky ride for the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.

And RICS chief economist Simon Rubinsohn, warns: “For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows.”

STAMP DUTY

The expected rise in mortgage rates over the coming six months is anticipated to outweigh any potential boost from the cut to stamp duty.

In September, new buyer interest fell again – the fifth month in a row – with a net balance of -36% of respondents citing a fall in enquiries.

New instructions to sell also continued to fall with estate agents (on average) holding just 34 residential properties on their books.

FALLEN

Sales have fallen over the month, with the September figure the most negative reading since May 2020 and the number of sales having now fallen for five months in a row. Looking ahead, RICS says sales expectations over the next three months, and the 12-month sales predictions also remain negative.

In the lettings market, tenant demand picked-up alongside a fall in landlord instructions. As a result, near-term expectations point to further strong growth in rental prices over the coming three months.

The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty.”

Rubinsohn (pictured) adds: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market.

“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.”

Industry reaction

Jean Jameson (pictured), Chief Sales Officer at Foxtons, says: “At Foxtons, we’re seeing house values hold up well, underpinned by tight supply in the London property market. We have seen continued strong demand through September in our offices, with new buyer enquiries up 4% compared to the same period last year, and new sales agreed up 7% on the same period last year.

“As we move towards year end, uncertainty in the economy and a rapidly changing mortgage market may affect buyer inquiries and new instructions across the industry and the UK, as people take more time to decide whether or not to move. Often the sales market does tend to be slower to react, and London tends to be further insulated from the wider UK market by its international appeal and limited stock.”

Jeremy Leaf (pictured), north London estate agent and a former RICS residential chairman, says: ’The RICS survey has always been regarded as one of the most accurate, not least because data is collected from surveyors and agents ‘at the sharp end’ just before release.

’New buyers are pausing for breath while considering the pace and size of future interest rate hikes, so activity has reduced. Like us, many are waiting to see whether worries about mortgage repayments rising more quickly than expected outweigh benefits from cuts in stamp duty and other taxes – particularly for first-time buyers.

‘Risks of a correction are greater but the market has proved its resilience repeatedly in the recent past. We’re told more borrowers have higher loan-to-value mortgage debt than in the last financial crisis of 2008 but we’re not seeing signs of a major correction in our offices yet.’