House prices stabilise, rents on the rise - surveyors say

The UK housing market showed more signs of stability, surveyors said on Thursday, though rents could rise 15% by 2023 as the supply of landlords' properties dries up.

The report from the Royal Institution of Chartered Surveyors (RICS) saw a recovery in new buyer enquiries, with the balance climbing from flat in June to +2 in July, the first positive reading since March 2017.

House prices are seen picking up too, with the headline prices balance edging up to +4% in July from +3% the month before.

In the rental market, approximately 22% of surveyors saw a reduction in new property being put up on the market for rent, with a fall of new landlord instructions recorded in the July 2018’s residential market survey being the eighth consecutive quarter that the indicator has recorded a negative number.

RICS said small-scale landlords are pulling out of the market, blaming tax changes brought in last year which have made buy-to-let investments less profitable. The organisation called on the government to look at the way the private rented sector is regulated.

This imbalance of supply and demand will cause rising rents for consumers. Over the next twelve months RICS expects a 2% increase in prices but a cumulative rise of around 15% by mid-2023.

"The impact of recent and ongoing tax changes is clearly having a material impact on the Buy to Let sector as intended,” said Simon Rubinsohn, RICS chief economist. "The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing. At the present time, there is little evidence that either is likely to make up the shortfall."

East Anglia and the South West are the most likely to see the sharpest growth over this period.

Economist Samuel Tombs at Pantheon Macroeconomics said the new buyer enquiries balance is sensitive to changes in Bank Rate, as proven by the index's sharp fall last September when the MPC announced that it would raise rates “over the coming months”. Tombs said demand is likely to weaken again in August. "The slowdown in employment growth now indicated by several business surveys also suggests that house purchase demand will weaken."