09 Feb 2017
Shortage of supply in both the lettings and sales segments continue to present a huge challenge for the market, according to the January 2017 RICS UK Residential Market Survey.
Survey in brief:
- UK house sales still lack momentum in January.
- Prices and rents continue to rise; shortage of stock is a key factor.
- Buy-to-let investment anticipated to decline given current policy landscape.
In January, new landlord instructions in the lettings market failed to improve for a fourth consecutive quarter across the UK. Moreover, respondents predicted that this issue would worsen over the medium term and indicated that they expected landlords to decrease the size of their portfolios over the next three years.
Changes to Stamp Duty in April, alongside scheduled cuts to mortgage interest tax relief, were both seen as important factors diminishing the attractiveness of buy-to-let as an investment as 28% more respondents felt that landlords were likely to decrease the size of their portfolio over the next twelve months. Over the next three years, 26% more contributors expected landlords to scale-back their portfolios. It is, however, worth noting that the sentiment survey was obtained prior to the latest housing announcements.
During the three months to January, tenant demand for rental properties continued to increase at the national level with the continued imbalance between supply and demand expected to squeeze rents higher. The exceptions to this pattern across the UK are to be found in London and Scotland where tenant demand is slipping back a little. Rent expectations essentially remain flat in Scotland, but are more downbeat in the capital.
Over the next five years, rental projections point to a cumulative increase of just over 25%, outpacing house price inflation over this time period (respondents anticipate prices will rise a little under 20% on the same basis).
New buyer enquiries were more or less unchanged during January, although, with only 5% of surveyors reporting an increase in demand, this is the lowest reading since August 2016. New instructions, having remained flat for the past few months, deteriorated in January and have now failed to post a positive reading in eleven consecutive months. 11% more chartered surveyors saw a fall in new instructions in January rather than a rise, leaving average stock levels on agent’s books still close to historic lows.
At the same time, sales were flat for the second month in succession with 1% more chartered surveyors seeing a fall in sales over the month. This headline reading does mask regional variation with the sales balance rising firmly in the South West while at the other end of the scale, it declined in central London.
Sales are however predicted to improve in the near term with 15% more respondents expecting a rise over the next three months nationally. What’s more the balance of respondents predicting that sales will increase over the year to come reached a one-year high (+37 net balance).
Meanwhile, 25% more respondents saw a rise in prices, rather than fall in January, as prices tick back up. Looking across the UK, the past price balance deteriorated slightly in central London for the second straight report and has now been in negative territory for eleven consecutive months. Most other parts of the UK continue to see prices rise, with the North West returning the highest net balance for a third survey running.
Prices are expected to continue to rise over both the next three and twelve months across the UK in all regions except central London.
The scale of the challenge Government faces as it announces its new approach to housing is clearly demonstrated in the results from our latest survey. Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium term view of RICS professionals working up and down the country is that both house prices and rents will over the medium term continue to grow at a faster pace than wages putting even greater pressure on affordability. Whether the measures announced can ease this this trend remains to be seen.
One-minute survey summary
Main findings in Wales
Surveyors are relatively upbeat about the outlook for the market in terms of sales and prices, but the lack of new houses coming onto the market is a concern in the short term at least.
New instructions from vendors fell for the eighth month in succession, according to the balance of respondents (-5%). As a result, the indicator of sales expectations has moderated (down from +27% to +21%), though remains in positive territory.
Good buyer demand has been evident in the market in recent months, but vendors remain cautious. We do expect more sellers to bring properties to the market as we move closer to the busier spring months.
The run up to Christmas holidays was busier than usual, which has carried on into the New Year; we are anxious to secure good-quality instructions as spring approaches.
Main findings in Northern Ireland
Buyer interest remains strong and houses are selling, but the supply of new properties coming onto the market continues to fall. Indeed, new instructions to sell were broadly flat for the second month in a row.
In terms of prices, these continued to move upwards in January and the expectation is that this trend will continue in the three months ahead. Surveyors also anticipate that sales activity will edge upwards in the short term, despite supply constraints.
The Northern Ireland housing market appears to have begun 2017 much as it ended 2016, with prices edging upwards and with reasonable demand evident. However, supply remains a challenge, with no sign of the number of properties coming onto the market picking up. Surveyors expect transaction activity to hold up in the short-term, but unless supply improves, this won’t be sustained. It remains to be seen if sellers are holding off until the spring months before marketing their properties.
We enter 2017 with the anticipation of growth in both prices and transactions. Our own expectation at Ulster Bank is for strong mortgage demand, with the ongoing very low interest rate environment and peoples’ desire to own their own home.
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