The housing market in England and Wales is experiencing a noticeable slowdown, attributed to the ongoing Middle East conflict, according to a recent survey by the Royal Institution of Chartered Surveyors (RICS). Estate agents report that potential homebuyers are becoming increasingly cautious, fearing higher mortgage rates and rising inflation. This has led to a softening in demand, with fewer properties being sold and more price-sensitive buyers entering the market.
Decline in Buyer Inquiries and Sales
The RICS monthly survey reveals that a net balance of 34% of its members reported a decline in new buyer inquiries in April compared to the previous month. While this marks a slight improvement from March's net balance of 40%, it still indicates weak market momentum. The volume of agreed sales also deteriorated, with a net balance of 36% of members reporting a fall, slightly worse than March's 35%.
Impact of Inflation and Interest Rates
The Bank of England has warned that interest rates may need to rise in the coming months due to unavoidable higher inflation stemming from the Middle East war and the resulting surge in oil and gas prices. Mortgage rates are also expected to be affected by rising government borrowing costs, as swap rates used to price fixed-rate mortgages move in tandem with government bond yields. Tarrant Parsons, head of market research at RICS, noted that activity and sentiment are likely to remain subdued until there is a clearer path for inflation and borrowing costs, particularly in southern England and London where affordability pressures are most acute.
Stagnant Supply and Falling Prices
The flow of new properties coming onto the market was largely stagnant in April. Additionally, 34% more RICS members reported decreases in house prices over the past three months than increases, a further deterioration from the previous month's -25% reading. However, regional variations are evident, with stronger price falls in London, the South East, East Anglia, and the South West, while the North West and North of England continue to see marginal price growth.
Rental Market Dynamics
In the rental market, demand continues to outpace supply as more landlords exit the sector due to increasing regulation and higher taxes. A net balance of 14% of RICS members reported a rise in tenant demand over the past three months, while new landlord instructions fell. A net balance of 25% of respondents expect rents to rise in the coming months.
Broader Market Caution
The RICS report aligns with observations from Savills, the estate agent, which noted greater caution among buyers and sellers in its UK residential business since the onset of the Middle East conflict. This caution has led to longer completion times, and overall transactions in the first quarter increased by only 1% year-on-year.
