Surveyors have reported that new home buyer inquiries stagnated in April due to affordability challenges, following three consecutive months of increases.
The Royal Institution of Chartered Surveyors (Rics) revealed that its latest survey of property professionals indicates a slight cooling off in buyer demand, likely influenced by the recent uincrease in mortgage rates. In April, a net balance of 1% of property professionals reported a decrease rather than an increase in new buyer inquiries, compared to a balance of 6% reporting a rise in inquiries in March.
Rics noted mixed regional feedback on buyer demand, with a significant slowdown primarily observed in London and southern parts of England. Regarding the number of properties available on the market, a net balance of 23% of professionals reported an increase in new instructions to sell during April, marking the most positive figure since September 2020.
The report also highlighted that average stock levels have reached a three-year high, with 43 properties per branch. There has been an improvement in agreed sales as well, with a net balance of 5% of professionals reporting an increase rather than a decrease in transactions. However, despite being the most positive reading since May 2021, it only suggests a minimal monthly increase in sales.
A balance of 1% of professionals expect house sales to drop rather than increase in the next three months, marking the weakest reading since October 2023. Over the coming year, a net balance of 33% of professionals anticipate house sales to rise rather than fall.
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A balance of 5% of professionals reported prices falling rather than rising in April. This was unchanged from the previous month. Almost all parts of England returned either a flat or slightly negative reading for house prices, while Northern Ireland and Scotland continued to see an upward trend in property values, the report said.
Looking at the lettings market, feedback suggests that tenant demand is continuing to lose momentum, but landlord instructions remain in short supply, Rics said. Simon Rubinsohn, chief economist, Rics, said: "Feedback to the latest Rics survey demonstrates the sensitivity of the sales market to interest rates at the present time, given the continuing challenge around affordability."
"A modest back up in mortgage pricing has contributed to the flatlining in the buyer inquiries metric over the past month, as well as the slightly more cautious signals around near-term expectations. That said, there is still a strong perception that activity in the market will pick up in the latter part of the year and into 2025, irrespective of any political uncertainty around the general election."
"As far as the lettings market is concerned, an increasing number of respondents are also drawing attention to affordability constraints, and this is reflected in a more modest pace of rental growth. But a fundamental problem in the market across much of the country remains the imbalance between demand and supply with new instructions continuing to decline."
The report emerged alongside a forecast from EY Item Club, which hinted that UK mortgage lending might only see 1.5% growth in 2024, as the squeeze on affordability and challenging borrowing rates keep home-buying demand in check.
With the economy expected to pick up speed throughout the year and a potential cut in the Bank of England base rate in the summer poised to boost consumer demand, housing demand is set to climb in 2025, the forecast suggests. According to the EY Item Club's they see a potential bounce in UK mortgage lending growth to over double the 2024 figure in 2025 (to 3.2%), with a steady 3% following in 2026.
The forecast also throws a cautionary note, predicting a rise in write-off rates on UK mortgages for 2024 and 2025, as some borrowers may struggle under the weight of higher mortgage costs. The forecast suggests that while write-off rates in 2025 are set to hit their highest point since 2015, the low unemployment rate should keep mortgage write-offs below the average levels of the 2010s.
It's anticipated that these rates will then decrease in 2026, assuming the pressure from high interest rates subsides. EY's UK financial services managing partner, Anna Anthony, said: "While we are hopefully beginning to see economic recovery in the UK, both households and businesses continue to face high borrowing costs."
"This of course has knock-on effects on bank lending, and activity in the housing market has been particularly impacted. High living and lending costs have meant fewer house purchases, and although we're starting to see signs that activity is picking up, we expect mortgage lending growth to be very low again this year."
She added: "If inflation continues to fall and interest rates are cut in the coming months as expected, we believe economic recovery and market confidence will gain momentum in 2025. However, election uncertainty in the UK and in the US, alongside rising geopolitical tensions in the Middle East and Ukraine, mean potential risks to the downside remain very real."
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