House buyer demand falls in May as prices rise further

Demand from prospective house buyers fell in May as rising interest rates and the cost-of-living crisis gave potential purchasers pause, even though house prices were still expected to rise in the short term, according to industry data released on Thursday.

The latest UK residential market survey from the Royal Institution of Chartered Surveyors (RICS) reported that new buyer enquiries fell in May, with a net balance of -7%, down from a much more positive sentiment of +8% in April.

Some respondents put it down to buyers tightening their belts as the rising cost of living started having an effect, with RICS noting that May’s result marked the end of a string of eight consecutive positive results for new buyer enquiries.

“The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point, on buyer activity in the sales market,” said RICS chief economist Simon Rubinsohn.

“Despite this, prices are viewed as likely to remain resilient into 2023.

“But as is often the case in these circumstances, the pressure is likely to be felt more visibly in transaction levels which are seen as likely to slow as the year wears on.”

The volume of agreed sales saw little change, with the survey reporting a “flat picture”.

Sales expectations over the next three months were also predicted to be flat with a net balance of +1%, falling from the rosier picture in April when the net balance was +10%.

Looking over the next 12 months, expectations were that sales were set to decline, with a net balance of -24% of respondents commenting that they foresaw sales declining, falling from -4% in April.

New instructions to sell homes were also largely flat during May, with RICS saying there was “little respite” for the lack of supply in the future, with respondents citing the weakest picture since December 2021 for new or requested market appraisals.

That, it said, suggested there was little prospect of more homes coming onto the market in the immediate future.

Given the constrained supply, house prices were continuing to rise, with a net balance of +73% of contributors reporting an increase during May.

Broken down, all parts of the UK were still seeing increasing prices, with growth described as “exceptionally strong” in Northern Ireland, the north of England, and Wales.

Looking ahead, 12-month price expectations did ease at the UK level for a third successive month.

Although a net balance of +42% of survey participants still envisaged house prices being higher in a year’s time, that was down from +78% in February, and was “the most moderate reading” since January 2021.

However, RICS said 12-month price expectations remained positive across all parts of the UK.

In the lettings market, meanwhile, tenant demand continued to rise firmly according to a net balance of +48% of contributors - the same as in April.

At the same time, landlord instructions continued to decline, with the latest net balance coming in at -13%, following a reading of -16% previously.

As a result, rental growth expectations over the next three months remained elevated, returning a net balance of +58% in May.

“What is particularly striking in the latest RICS survey is both the current and anticipated strength in the rental market,” Simon Rubinsohn added.

“New instructions of property to let continue to fall according to respondents to the survey while demand is still very strong leading to rental levels being bid higher and greater challenges for tenants who aren’t in the position to compete for the available stock.”

Reporting by Josh White at Sharecast.com.