Sales market lacks momentum, says RICS
The January sales market appeared to be lacking momentum, with month on month change in both enquiries and transaction volumes remaining minimal.
The data from RICS UK Residential Market Survey also indicated that a reduced housing supply had led to problems in the lettings market, something which could potentially grow worse over time. Those who took part in the survey predict that during the next three years, landlords are likely to scale back their portfolios.
During January, enquiry levels from new buyers in the sales market remained relatively unchanged; the net balance of surveyors reporting a growth was 5%. This is the softest result since August of 2016. New sales listings fell over the period, meaning for eleven consecutive months, the national new instructions indicator has been unable to post a positive reading. Average levels of stock on agent’s books have remained close to all-time lows.
In net balance terms, sales remained flat for the second successive month, whilst the agreed sales indicator remained at -1%. However, there was variance across the regional markets. In central London, housing sales fell, whilst the South West saw a strong growth in sales.
Strengthening in some respect, expectations for the near term were more positive, with the net balance growing from 3% to 15%. Where confidence for the next year is concerned, the outlook has further improved as the balance of surveyors predicting a rise in sales reached a one-year high. Despite the strongest sales forecasts being in Northern Ireland and Scotland, an improvement in activity is expected across all areas.
A reading of 25% was the registered headline price balance during January. When this figure was disaggregated, the data showed that in Central London, the past price balance had fallen slightly for the second straight report. This further decline has meant for the eleventh consecutive month, the reading has been in negative territory. The majority of other UK areas have continued to observe a rise in prices, with the highest net balance being returned in the North West for the third survey in a row. Substantial increases in house prices were also reportedly witnessed in the South West and across Northern Ireland.
The only area where near term price predictions are negative is London, with price expectations for the next three months dropping from 0 to -15%. Across most parts of the UK, price forecasts for the next 12 months are positive, with London being the sole exception. The outlook here has turned marginally negative.
For the fourth consecutive quarter, the rental market also saw little change in new landlord instructions. With Stamp Duty changes and planned cuts to mortgage interest tax relief, the minimal activity in the lettings market may become a more significant problem later down the line. This is because the changes have largely been cited as weakening the attractiveness of buy-to-let. In regards to the next 12-month period, a net balance of 28% more respondents believe that landlords are likely to decrease their portfolio as opposed to increasing it. 26% more respondents predict that landlords are likely to reduce the size of their portfolios over the next three years.
Despite this, tenant demand continued to grow at the national level in the three months prior to January. This was, however, at a modest level. Rents are predicted to be pushed higher due to the imbalance between supply and demand. Taken as a three-month average, rental projections over the next five years indicate a total rise of just over 25%. During this period, rental growth is therefore predicted to marginally outpace inflation of house prices.
Commenting on the RICS figures was the Group Managing Director of Mortgages at Aldermore, Charles Haresnape, who stated: “Given the inadequate supply of housing in the UK, combined with the pressures facing the buy-to-let sector, it is not that surprising that rents are expected to rise by 25 per cent over the next five years. This further supports our view that additional assistance is required for smaller developers which could go some way to alleviate the slow progress in addressing this deficit. In light of the Housing White Paper released this week, the latest RICs survey highlights the scale of the challenge the government faces.
“As house prices are expected to rise across most parts of the UK, and with only 5% of surveyors reporting an increase in new buyer’s enquiries, the survey reveals that the struggle for those who are looking to raise a deposit for their first home is likely to continue in 2017. In the Housing White Paper, the Government acknowledged that this trend cannot continue, and in an aim to address it, will focus on delivering the right type of housing in the right places through a new assessment of housing. This is something we support, as first-time buyers play a vital role in the UK housing market. Aldermore is committed to helping those with smaller deposits, especially at a time when house prices continue to grow at a faster pace than wages.”