Lack of new instructions continues to hold back sales growth

  • Prices rise at quickest pace in over 12 months
  • New buyer enquiries continue to build at a solid rate
  • Lack of new instructions still appear to be holding back sales growth

The August 2015 RICS Residential Market Survey results point to a further acceleration in national house price inflation, again underpinned by the enduring mismatch between falling new instructions to sell and rising buyer demand.

At the national level, new buyer enquiries increased for a fifth month in succession, with the robust pace of growth broadly consistent to that reported in the past four surveys. Most parts of the UK continue to see rising demand, led by significant improvements in the West Midlands, the North West and Wales. Alongside this, new vendor listings declined for the seventh consecutive month, albeit the pace of decline did ease moderately. Nevertheless, new instructions have yet to record any meaningful uptick since the middle of 2013, pushing average stock levels to record lows.

Interestingly, 39% of respondents reported the number of appraisals fell over the month (versus 27% who saw a rise), dampening prospects of an imminent revival in supply coming to market. It should be noted however that the results for this question are not seasonally adjusted and therefore could be influenced in part by the holiday season.

With the supply situation remaining a challenge, agreed sales showed only the most modest of increases for the fourth consecutive month. However, regional movements vary considerably from the national sales picture. Indeed, the West Midlands, the North and the South West all posted solid growth in transactions, while East Anglia and the North West were reported to have seen a drop in sales volumes. Looking ahead, all areas of the UK are expected to chalk up significant sales growth over the next twelve months, with the outlook particularly upbeat in Wales and Scotland.

Given the ongoing imbalance between supply and demand in the market, the latest data unsurprisingly shows house prices continuing to rise, and at an accelerating pace. As such, house price inflation has now quickened in each of the last seven months following a sustained period of easing towards the latter half of 2014. We would expect this to become increasingly visible in the actual house price data released by the ONS and the major lenders in the coming months, given the historical lead provided by the RICS Price Balance over these series. What’s more, prices are now reportedly increasing across all twelve regions/countries covered by the survey (prices picked up for the first time in three months in the North East). In net balance terms, the strongest growth came in East Anglia, Northern Ireland and Yorkshire & Humberside, although the vast majority of areas are seeing firm price momentum.

Going forward, survey respondents are most confident of seeing prices rise in the near term across Yorkshire & Humberside and the South West. Meanwhile, at the twelve month horizon, a national net balance of 76% of contributors anticipate prices will increase (rather than fall), meaning this measure is now more elevated than at any other point since March 2014.

Largely unmoved from last month, 68% of respondents continue to deem current market valuations to be either at or below fair value nationally. Nonetheless, perceptions in East Anglia, London and the South East differ quite significantly, with over 50% of contributors feeling residential property is somewhat overpriced in each of these localities. At the other end of the spectrum, Northern Ireland, Scotland and East Midlands have the highest proportion of respondents perceiving prices to be around fair value, or below, at present.

Turning to the lettings market, tenant demand rose (on a non-seasonally adjusted basis) at a smart pace for the eighth straight month, outstripping the modest pick up in new landlord instructions once more in the process. Accordingly, rents are expected to increase in the near term (to a greater or lesser degree) right across the UK. RICS members are forecasting rental growth of approximately 3% at the headline level, with the strongest regional growth expected to come in the West Midlands (roughly 4%). Over the next five years, rents are (on average) anticipated to rise by around 4.5% per annum on a UK wide basis.

Finally, the RICS gauge of ‘perceived LTV ratios’ suggested LTVs remained broadly unchanged across all buyer categories over the month.

Andy Sommerville, Director of Search Acumen, comments:

“Agreed sales are chugging away according to the latest RICS data, but speculation around property price hikes is a reminder of the stark gap between pent-up buyer demand and availability of housing stock.

“House prices are showing no signs of abating, and the glaring supply shortage desperately needs to be addressed. The reported rise in tenant demand over and above landlord instructions shows the private rental sector is also suffering a squeeze on capacity. The government’s promise of more brownfield development and extra homes is a step in the right direction, but the pledge to deliver 275,000 extra houses by 2020 won’t come close to closing the gap.

“For now, rising prices have not dampened interest or buyer enquiries, which means conveyancers can expect fierce competition in the market for the remainder of the year. It looks like being a busy end to the year, so it’s vital that business systems and processes are set up to deliver a quality service offering that exceeds expectations.”

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