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Confidence in housing market dips ahead of election

Confidence in the UK’s housing market is starting to wane despite improvements over the past few months, according to the latest residential market survey from the Royal Institution of Chartered Surveyors (RICS).

Private rented sector under strain
A significant mismatch in the private rented sector (PRS) persists, with demand greatly outstripping supply. This leaves renters grappling with rising living costs and decreasing affordability.

The survey also highlights growing challenges in the UK’s lettings market, and RICS notes that it will be intriguing to see how political parties address these issues in their manifestos.

Tenant demand rises, supply remains flat
Tenant demand increased notably to a net balance of +35%, up from +10% in May. In contrast, new landlord instructions, referring to landlords offering properties for rent, remained flat. This growing disparity between supply and demand indicates that rental prices will continue to rise, albeit at a slower pace than before.

Buyer demand declines, sales outlook remains positive
As expectations for an imminent interest rate cut diminish and the cost of living crisis intensifies, there has been a slight drop in new buyer demand in the sales market. Nationally, new buyer demand recorded a net balance of -8%, compared to a flat picture in April. This figure is the lowest for new buyers since November 2023, with the weakest demand in the South East and South West of England.

Survey respondents also reported a decrease in the number of sales agreed during May. However, sales volumes are expected to rise modestly over the next three months. The outlook for the next twelve months remains relatively optimistic, with 43% of survey participants anticipating an increase in sales activity, up from 33% in April.

House prices and regional variations
Nationally, house prices continued to fall, posting a net balance of -17% compared to -7% in April. After being steady in March and April, the latest data suggests a slight decline in house prices in May. Regionally, Scotland and Northern Ireland saw house prices continue to rise.

RICS insights and political implications
RICS chief executive, Justin Young, commented: “Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos. While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options.”

Young added: “The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation. With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.”

Interest rates and first-time buyers
Higher interest rates continue to hinder first-time buyers. Politicians are vying for support from this group, with the Conservatives proposing Help to Buy 2.0 and Labour offering the Freedom to Buy scheme.

Economic outlook and future trends
Tarrant Parsons, RICS senior economist, stated: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”

Strategic planning essential for landlords
As the housing market grapples with fluctuating confidence and political parties outline their plans, landlords need to adopt a strategic approach. With demand for rental properties continuing to exceed supply and economic pressures persisting, it is vital for landlords to stay ahead of regulatory changes and market trends. By focusing on sustainable property investments and maintaining high-quality living conditions, landlords can better position themselves to meet tenant demands and ensure long-term profitability in a challenging market.