New Government needs to view housing market as a whole not separate parts, as rents are set to rise

As the new government beds in, the July 2019 RICS Residential Market Survey results show some of the improvement seen in near term expectations for sales and prices partially reversed. In particular, the short term outlook for prices has turned slightly negative again, while respondents see sales remaining flat over the same time frame.

As the new Government seems to be concentrating on increasing home ownership, falling supply in the lettings market seems likely to squeeze rents higher. As the headline tenant demand indicator (quarterly seasonally adjusted data) picked-up to post the strongest reading since the closing stages of 2016, landlord instructions fell once again, extending a run of continuous decline stretching back over the past thirteen quarters. Near term rental growth expectations were therefore driven up, with the headline net balance of +25% in July representing the most elevated reading in twelve quarters.

In more positive news, 8% more respondents saw a rise rather than fall in enquiries from new buyers in July. This marks the second month running that has seen a small increase, mirrored across most UK regions.

While buyers seem to be picking up, newly agreed sales have in fact slipped. Indeed, the national net balance slipped to -6%, from +3% in June. Some areas did see a stronger sales trend, in a slightly mixed regional picture, with respondents across the North East and the West Midlands in particular reporting a reasonably solid pick-up during July.

Looking at the picture ahead, near term predicted sales are flat, with a net balance of -2% (down from +6% in June). What’s more, sentiment is now only modestly positive regarding the twelve month outlook, at the national level.

Again, while new buyer enquiries are picking up slightly, new instructions to sell were unchanged for the second successive report. This follows a string of eleven consecutive monthly declines in fresh listings. It seems there is little prospect of a sustained rise in supply coming onto the market in the immediate future.

Price wise, the headline price indicator pulled back into negative territory in July, with the national net balance falling to -9% (having edged up to -1% in June). Regionally, prices were seen to be rising at a solid pace in Northern Ireland, Scotland and Wales. But, prices continue to fall in London, the South East and East Anglia.

Back at the national level, feedback from contributors is still suggesting that higher priced tiers of the market are facing a more challenging environment. 69% of respondents note that, for properties marketed at over £1m, sales prices are coming in below asking prices (up from 66% in April). However, for properties listed at up to £500k and below, 59% of survey participants report sales prices have been at least level with asking (albeit this is slightly down on 62% three months ago).

When it comes to the outlook for prices, near term expectations deteriorated over the month, but at the twelve month horizon, projections remain marginally positive in net balance terms.

Simon Rubinsohn, RICS Chief Economist, said:

“The latest RICS results will provide little comfort for the market with all the key indicators pretty much flatlining. Indeed, the forward looking metrics on prices and sales also seem to losing momentum as concerns, clearly voiced in the anecdotal feedback, both about Brexit and political uncertainty heighten. Some support may be provided by an easing in the cost of money which could feed through into lower mortgage finance costs, but this may be insufficient to provide a spur to lift activity given the clouds hanging over the economy.

“Meanwhile, the lettings market data continues to send a very strong message that institutions need to upscale their build to rent pipeline to address the shortfall resulting from the decline in appetite from buy to let investors. It is significant that the near-term rental expectations indicator has climbed to a three-year high.”