The UK property market started 2023 on the wrong foot, with new buyer demand, sales, listings and prices all on a downward trend, according to the Royal Institution of Chartered Surveyors’ (RICS) latest residential market survey.
The data is the latest confirmation of a darkening outlook for UK house prices in 2023.
Earlier this month, Halifax reported house prices had stalled following four months of price falls, while Nationwide’s house price index showed a similar trend.
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The RICS January 2023 UK Residential Survey results show new buyer enquiries slipped to -47%, down from -40% the month before, making January the ninth successive negative monthly reading for new buyer enquiries. It was also the weakest monthly reading since April 2009.
The RICS Residential Market Survey's net balance data ranges from -100 to +100. A positive figure implies more respondents are seeing increases than decreases while a negative number implies that more respondents are seeing decreases than increases.
RICS also reported a monthly decline in national house prices as the net balance fell to -47% from -42% the month before. All regions in England are seeing house prices fall, with the East Midlands and the South East facing the sharpest declines.
“The RICS report is different from other indices, because it measures the price of homes among sales being agreed that month – so there’s not the usual lag for three months or more while we wait for these to translate into property completions,” says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
“RICS first noted price drops in its October report, which are likely to be reflected in the January or February figures from the ONS. The most recent RICS data indicates that we can expect a steady flow of bad news about house prices well into the spring.”
Why is the UK property market slowing down?
“Although some respondents to the January RICS survey have noted a little more interest in the housing market as the new year got underway, the overall tone of the feedback still remains subdued which is not altogether surprising given the jump in mortgage rates since the autumn,” says Simon Rubinsohn, chief economist at RICS.
Mortgage rates began to rise rapidly in the second half of 2022, following the mini-Budget announcement and a series of sharp interest rate rises by the Bank of England (BoE).
Last week the BoE raised rates to 4%, taking them to their highest level since 2008, in response to stubborn inflation.
Elevated mortgage rates are clearly making buyers question whether now is a good time to buy a house. The latest data from the BoE revealed mortgage borrowing fell by £1bn from November to December.
However, after last year’s spike, mortgage rates have started to come back down as lenders fight each other for customers. HSBC has just announced a 3.99% five-year fixed rate mortgage, the first of its kind since September.
But with more interest rate rises on the horizon and the ongoing cost of living crisis, buyers can’t be blamed for remaining cautious.
Forecasts are starting to become slightly less pessimistic
The sales outlook for the next 12 months remains negative, but it did half from -42% in December to -20% in January, the RICS report said.
“Estate agents aren’t convinced the picture will change in a hurry,” says Coles. “They expect the market to stay quiet and for prices to keep declining, as buyers get to grips with higher mortgage rates and the prospect of a falling market.”
“However, the degree of pessimism appears to be easing slightly. Since the horrors unleashed by the mini-Budget, the reversal of an awful lot of measures means the market is forecasting lower rates than it was. As a result, fixed rate mortgages have been getting cheaper.”
Additionally, the UK’s economic forecast is slightly improving. The National Institute of Economic and Social Research (NIESR) believes the UK is likely to avoid a recession based on its latest projections.
What’s more, BoE now reckons that if the UK does slip into a recession it’s likely to be shorter and shallower than previously predicted.
“Agents are increasingly hopeful that a combination of the two could persuade buyers to return,” says Coles. But “it remains to be seen much damage has been done to buyer confidence during the past few months, and how the health of the market will hold up if the official figures feed us a monthly dose of misery.”
“Prospective buyers should try and not be too concerned by the latest property headlines, which can be overwhelming, and instead seek personal mortgage advice,” says Felicity Holloway, head of mortgages at Moneybox.
“House prices will likely fall further from here so it’s important to work with a broker who can assess their individual circumstances to determine realistically how close they are to achieving their homebuying aspirations.”
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