UK housing sales remain subdued as rent expectations continue to heat up

Sales activity in the UK housing market remained subdued, according to the latest RICS UK Residential Market Survey.

Newly agreed sales keep on falling

Significantly, over the month, newly agreed sales have recorded the 16th successive month of continued decline, with 7% more respondents reporting a fall in agreed sales. The RICS series is a good lead indicator by around two quarters of the HMRC and Land Registry transactions data, and this continued decline in newly agreed sales suggests that the softer trend in sales volumes will not improve over the coming months.

Have people given up on owning a home?

Following on from that, the New Buyer Enquiries series which provides a gauge as to the appetite to acquire property (this series is well correlated with data on mortgage approvals), is showing little reason to expect any uplift. The number of people looking to buy remained flat in June, prolonging the trend which dates back to late 2016. This is likely to persist through the second half of the year with the time taken to complete a sale edging up from around sixteen weeks (Spring 2017) to around 18 weeks at present.

For the second month in a row, new instructions have risen, with 10% more respondents seeing an increase in the flow of properties being put up for sale. However, with average stocks remaining close to historic lows at 43 it would be too early to suggest that this issue is lessening as an obstacle.

What will the coming year bring?

The survey has in the past highlighted a lack of available second-hand stock as a key impediment to the efficient functioning of the market, and the pipeline looks unlikely to improve with new appraisals of property by valuers down on the same period last year. Looking ahead, sales expectations are mildly positive for the coming three months, but at the twelve month point chartered surveyors are more cautious, with the net balance slipping to zero for the first time since last October.

The lack of activity on the sales side also continues to impact prices. At the headline level they remain flat in June, and it is the 13th consecutive month that chartered surveyors have reported a sluggish picture, with respondents not anticipating much change in the coming three months either.

Not enough rental properties are driving up rents

Looking at the lettings data, new instructions coming through to agents has dropped again (a net balance reading of -22%). This is the 21st consecutive month in which the feedback has pointed to lower supply of rental properties coming to market. Anecdotal remarks, unsurprisingly, draw attention to role the change in tax treatment on investment property has played in driving this trend. The Rent Expectations series is pointing to a cumulative average rise of around 15% over the course of the next five years.

Simon Rubinsohn, RICS Chief Economist said: ‘It is hard to see what is going to provide much impetus for activity in the housing market in the near term. Meanwhile the on-going challenges around lifting the delivery pipeline, reflected in last week’s disappointing data on housing starts, is captured in the suspicion in the survey that prices are likely to resume an upward course over the coming year. The challenge is also visible in the response of the private lettings market to change to the tax treatment on investment properties. While it is understandable that the government wanted to provide a lift for first time buyers, this may well come at the cost of higher rents as the appeal of buy to let diminishes.’