The latest report from the Royal Institution of Chartered Surveyors (RICS) provides a bleak outlook for both buyers and renters, suggesting the imminent rise in rates could have adverse effects. As per the findings, buyer demand, house prices and agreed sales have witnessed a dip in May, albeit not as drastic as in previous months.
Interestingly, the number of new instructions saw a rise for the first time since the start of 2022. The average estate agent now has 38 properties on their register, inching closer to the long-term average of 40. However, May continued the unsettling trend of increasing tenants and decreasing landlords, as escalating interest rates prompted more buy-to-let landlords to sell their properties.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, shared her views on the current situation: “May was just the precursor to a possible storm with demand, house prices, and sales on the decline. The recent mortgage rate hikes will only exacerbate the property market’s struggles, dampening demand and suppressing sales. However, sellers aren’t the only ones set for a challenging summer, renters will also face the brunt of rising rates.”
Drawing on a Shakespearean analogy, she explained the continual downward trajectory of demand which has caused a ripple effect of lower sales and reduced prices. The concerns lie mainly with increased inflation and surging house prices, leaving potential buyers in a state of uncertainty.
The Bank of England’s late-May revelation of stickier-than-anticipated inflation has further fuelled these concerns. This has resulted in higher fixed-rate mortgages, with the average 2-year fixed mortgage now hovering around 5.75%, a substantial increase from the previous 5.3%. This increase might deter potential buyers, as evidenced by Halifax’s recent data showing flat house prices in May.
On the rental front, the surge in mortgage rates is taking a toll. Agents report an ever-worsening market imbalance, with landlords selling off properties due to costly legislative compliance and less favourable mortgage conditions. Consequently, two-thirds of agents report an increase in buy-to-let landlords looking to sell.
However, not all views of the situation are entirely grim. Terry Woodley, MD of Development Finance at Shawbrook Bank, suggests that the latest RICS survey indicates some optimism. He highlights that increased buyer enquiries, impending energy price stabilisation and reducing inflation rates could instil a sense of confidence among buyers.
Woodley warns, though, that any potential base rate increases could dampen this newfound confidence. He urges buyers needing to move to act swiftly to capitalise on the current climate. At the same time, he advises developers to look further ahead to when their projects will be ready for sale, expecting base rates to have stabilised and inflation to have returned to normal by then.
