Whilst national house prices overall continued to rise, the UK Residential Property Survey found that several factors of uncertainty reduced momentum in the UK’s housing market in February.
Buyer demand weakened, posting a net balance reading of -14% in February. This is down from -1% in January and marks the weakest result for the survey’s gauge of buyer demand since November 2023.
Changes to Stamp Duty arriving on April 1, where the threshold will reduce from £250,000 to £125,000, is expected to weaken market activity and will continue to influence the slowdown. Added to this, geopolitical uncertainties contribute to a less favourable climate for the housing sector.
Despite these challenges, house prices at a national level continue to rise overall, albeit at a subdued rate. The latest net balance came for price growth came in at +11%, which remains consistent with a subtle upturn in prices. However, this series has now moderated in each of the last two months, easing from +25% and +21% in December and January, respectively.
Respondents note that that whilst the recent interest rate cut by the Bank of England was welcomed, there is an appetite for the bank to go further.
Looking to the future, whilst the market is expected to continue to soften in the short-term, most respondents believe that house prices will rise over the next twelve months. Indeed, the net balance for the year-ahead price expectations series sits at +47%, broadly in-line with the average reading posted over the past six months.
In the lettings market, tenant demand recorded a figure slightly below zero for a fourth month in a row, returning a net balance of -4% in February. Consequently, this is longest stretch without a positive reading for this indicator since the monthly (non-seasonally adjusted) lettings dataset was established in 2012. This points to a broadly stagnant trend rather than an abrupt downturn. Alongside this, landlord instructions continue to show negative momentum, registering a net balance of -22%.
Despite the subdued demand backdrop, a net balance of +34% of survey participants foresee rental prices rising over the coming three months. Whilst demand is down, supply appears to be reducing at a faster rate, likely causing further rental price rises.
Simon Rubinson, RICS Chief Economist, said:
“The UK housing market appears to be losing some momentum as the expiry of the temporary increase in stamp duty thresholds approaches. Some concerns are also being expressed by respondents about the re-emergence of inflationary pressures and the more uncertain geopolitical environment. That said, looking beyond the next few months, sales activity is seen as likely to resume an upward trend with prices also moving higher.
“A key support for the market continues to be the increased flow of existing stock becoming available, giving buyers a greater choice of options. However, leading indicators around new build remain subdued for now, highlighting the significance of the Planning and Infrastructure Bill introduced to Parliament this week.
The industry reacts:
Tom Bill, head of UK residential research at Knight Frank commented, “There has been a mood of risk aversion in global financial markets and among UK homebuyers in recent weeks. Donald Trump’s erratic trade policy and increases in German defence spending are two reasons beyond the control of the government that most UK mortgage rates remain above 4%, which is keeping demand in check. There is also uncertainty around what measures the UK government may announce in this month’s spring statement to increase its financial headroom, as well as the inflationary impact of some of its policies. Markets still expect two Bank of England rate cuts in 2025 and we still believe there will be single-digit house price growth, but some caution is understandable.”
Tomer Aboody, director of specialist lender MT Finance, says: “Although we have seen a confident market over the past 12 months as buyers make their move due to a better interest rate environment and lower inflation, both buyers and sellers have been used to much lower rates and are hoping for further cuts in coming months.
“While sales volumes are up, they are still well below historical figures and some intervention will be needed in order to inject more life into the market. Unfortunately, particularly given further difficulties ahead as the fallout from the recent Budget continues, any positive intervention doesn’t seem to be on the immediate horizon.
“In the rental market, as landlords are continually hit there is reducing availability of rental property for tenants, which is driving up rents.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:
On sales
“There’s no doubt that many brought forward buying decisions in view of the imminent withdrawal of the stamp duty concession. As a result, we have noticed in our offices demand – for flats not houses – has softened a little over the past few weeks as the deadline approached. No price correction is expected as underlying market strength remains sound. However, we know uncertainty is the enemy of investment so worries about the economy here and abroad as well as possible knock-on effects to inflation and interest rates will not help confidence.”
On lettings:
“Affordability is still acting as a check on rent rises but, lack of supply particularly of smaller flats and houses, has certainly prevented more substantial reductions in activity over the past few weeks. Fortunately, some flats freed up by tenants trying to buy, before becoming impossible for them to take advantage of the stamp duty concession, have bolstered availability and helped to maintain a more reasonable balance with continuing almost insatiable demand.”
Via @PropertyWire