The UK housing market is stuck in neutral, with buyer demand flagging across the country and sales activity stubbornly low, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS). The survey reveals a stark contrast between a weakening sales market and a rental sector struggling to cope with a severe shortage of available homes, driving up rental prices.
RICS reported a net balance of -9% for new buyer enquiries in January, indicating that more surveyors saw a drop in interest from potential purchasers. While this is a slight improvement on previous months, it still points to a market in caution mode. The number of new sales instructions also declined, with a net balance of -10%, suggesting fewer homeowners are putting their properties up for sale. This reduced supply, combined with weak demand, is exacerbating the sluggishness in transactions.
Regional variations abound, but London and the South East are among those hardest hit by the downturn in buyer interest. According to Halifax's data, UK house prices fell 1.7% in December, taking the average property value to £284,325 – the third consecutive monthly decline. Yet some areas, notably Scotland and parts of the North, have shown more resilience, albeit within a subdued national context.
First-time buyers face a particular challenge. While weaker demand might suggest more negotiating power, high mortgage rates remain a significant barrier. The average two-year fixed mortgage rate stands at around 5.8%, significantly higher than the sub-2% rates seen just a few years ago. This elevated cost of borrowing, combined with the removal of schemes like Help to Buy for new builds, makes affordability a major concern. Existing homeowners, particularly those on variable rates or nearing the end of fixed-rate deals, are also grappling with increased mortgage payments, impacting their ability or willingness to move.
The rental market is under pressure from a different angle. RICS highlighted a significant imbalance between tenant demand and available rental properties. A net balance of +51% of respondents reported an increase in tenant enquiries, while a net balance of -23% saw a fall in new landlord instructions. This disparity is projected to push rents higher, with RICS forecasting a 5% increase over the next year. Landlords are facing rising costs, including increased mortgage interest payments and regulatory changes, which some argue are contributing to a reduction in the supply of rental homes.