Although Prices Remain Elevated, ‘Storm Clouds Are Visible’ in the U.K. Housing Market

The U.K. real estate market is losing momentum as interest rates and economic uncertainty have stalled buyer activity. 

For starters, the phone is no longer ringing off the hook for most real estate agents. Interest from new buyers has fallen, according to respondents to the latest residential market survey released Thursday from the Royal Institute of Chartered Surveyors (RICS). 

That marks the third straight month of declines, the survey said, with every region of the U.K. now seeing a downward trend in new buyer inquiries.

“The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market,” Simon Rubinsohn,  chief economist of RICS, said in the report. 

In addition, a majority of those surveyed say sales continued to slump in September, the data showed. Additional rises to interest rates in the next six months is “anticipated to outweigh any potential boost from the cut to stamp duty,” the report said. 

Late last month, the U.K. government announced changes to the stamp duty land tax, increasing the threshold at which it begins to £250,000 (US$277,208) of a home’s price, and adding even more tax relief for first-time buyers, Mansion Global reported. 

Inventory also remains at a historically low level, with the average agent representing just 34 residences, the survey said. Meanwhile, “the pipeline appears to have deteriorated further,” with a greater share of agents reporting a decline in home appraisals, a precursor to listing, according to the report. 

The lack of supply has kept property prices high, but growth has slowed, according to the survey. In September, a measure of home price growth more than halved compared to the spring. Meanwhile, price expectations for the next year have now reached negative territory, with a majority of respondents now foreseeing a dip in prices over the coming 12 months.

“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near term expectations for both pricing and sales,” Mr. Rubinsohn continued. “Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction. How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labor market begins to reverse.”