In the UK property market, demand from buyers has fallen as confidence in an imminent cut in interest rates and the associated reduction in mortgage costs has waned.
According to a survey by the Royal Institution of Chartered Surveyors (RICS), 8% of property professionals reported a decline in demand for homes in May, the weakest since November 2023. Buyer demand was weakest in the south-east and south-west of England.
The lack of demand has pushed down real estate prices: 17% of appraisers expect prices to fall.
In Scotland and Northern Ireland, property prices bucked this trend and continued to rise.
Survey respondents also reported a decline in sales agreed in May, although a slight increase in sales volume is expected over the next three months.
Mortgage rates have risen slightly this week as prospective homeowners struggle to find a deal they can afford. The average rate on a two-year fixed-term contract was 5.99% this week, higher than last week’s 4.89%, while rates on a five-year contract were 5.46%, up from last week’s 5.36%, according to figures from Uswitch.
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This follows the Bank of England’s (BoE) decision to keep UK interest rates at their 16-year high of 5.25% for the sixth consecutive day. The latest data suggests that prospective homeowners are waiting for a rate cut to enter the property market.
Tarrant Parsons, senior economist at RICS, said: “The recent recovery in the UK property market appears to have slipped into reverse gear recently, with buyer demand losing some momentum due to the upward move in mortgage rates in recent months.
“Nevertheless, expectations suggest that this is delaying rather than preventing a modest improvement in the future. Indeed, respondents continue to expect sales activity to be positive in the coming year, although this is likely to depend on the Bank of England being able to start cutting interest rates in the coming months.”
The outlook for the next twelve months remains relatively optimistic: 43% of survey participants expect a revival in sales activity (in April this figure was only 33%).
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However, the picture is completely different in the UK rental market: demand far exceeds supply, meaning tenants are faced with rising living costs and declining affordability.
Tenant demand rose to 35% from 10% in May. Meanwhile, orders from new landlords, i.e. landlords offering properties for rent on the market, remained unchanged.
“While both the Conservatives and Labour claim to be the party of home ownership, greater attention must be paid to improving conditions for the generation of renters who are faced with rising rents and a lack of suitable options,” said RICS chief executive Justin Young.
“This particular demographic – typically made up of people aged 18 to 40 – has doubled in size over the past two decades, so politicians need to focus on them, as well as homeowners, to win the support of a growing segment of the electorate.
“The housing market needs long-term, not short-term, strategies and an awareness that the different types of use are interrelated. So there is no one-size-fits-all solution that will fix the situation. With the market under pressure, the gap between supply and demand continues to cause problems for both rental and purchase.”
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