UK house prices continue to soften

The UK house market continued to falter last month, industry research showed on Thursday, as prices and sales both fell in response to higher mortgage costs.

According to the latest residential market survey from the Royal Institution of Chartered Surveyors, the net balance for house prices softened to -47, the lowest since April 2009, from -42 in December. Consensus had been for -45.

A balance measures the difference between the percentage of surveyors seeing rises and those reporting falls.

New buyer enquiries also fell, with a net balance of -47 compared to -40 a month previously, the ninth successive negative reading. The new instructions balance came in at -14.

RICS said the market was still adjusting to the higher borrowing costs, after mortgage rates rocketed in the autumn in response to the government’s disastrous mini-budget.

Surveyors did not forecast any short-term improvement. The near-term price expectations measure was -66, while sales were expected to continuing falling in the coming three months, with a balance of -49, although that was a marginal uptick on December’s -54.

Simon Rubinsohn, chief economist at RICS, said: "Although some respondents 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.

"Prices, meanwhile, are now beginning to reflect the shift in balance between demand and supply.

"However, it is questionable how much downside to pricing there is likely to be, given that recent macro-forecasts from the Bank of England and others are now envisaging a less harsh economic environment this year."

Kallum Pickering, senior economist at Berenberg, said: “This is the lowest monthly balance since April 2009, when the UK was in the grip of the global financial crisis, and the third largest annual point change in the series, which goes back to 1978.

“The UK’s consumer-orientated economy is sensitive to large gyrations in house prices, which impact the net wealth of households and often amplify swings in the business cycle. Although economic data held up decidedly better than expected in late 2022, slumping housing market activity signals that the near term risks are titled to the downside.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “The latest survey continues to suggest that housing market activity is stalling in the face of elevated mortgage rate.

“Prices still have much further to fall. Mortgage rates still are over three times higher than they were a year ago, pricing many out of the market, while many more potential buyers will fail lenders’ affordability tests which have become tougher to pass since Monetary Policy Committee has hiked bank rate.”