Mortgage affordability ‘hitting housing market but 12-month outlook more stable’

Mortgage affordability is continuing to affect the property market, with nearly all parts of the UK seeing house prices retreat, according to surveyors.

The Royal Institution of Chartered Surveyors (Rics) said its report for September shows the continuation of a challenging market backdrop, with interest rates continuing to hamper mortgage affordability, and the disparity between tightening lettings supply and rising demand causing rental price rises.

A net balance of 39% of surveyors reported new buyer inquiries falling rather than rising in September.

A balance of 37% of property professionals reported agreed sales falling.

In the coming three months, professionals generally continue to expect a decline in sales volumes, Rics said.

However, expectations for sales in the coming 12 months turned positive in September, with a net balance of 3% of surveyors expecting sales to increase during this period, improving from a net balance of 5% who expected sales to fall rather than rise in the year ahead, when the August survey was carried out.

Some professionals noted that the recent pause in Bank of England interest rate rises has contributed to a slightly more positive picture, Rics said.

Looking at house prices, a net balance of 69% of professionals reported falls rather than rises.

While nearly all parts of the UK are witnessing house prices retreat, downward pressure appears most significant across the West Midlands and the South East of England, the report said.

Near-term expectations point to a continuation of prices declining, although at a slower pace, it added.

In the lettings market, unlike the sales market, demand is continuing to rise, the report said.

A net balance of 43% of professionals saw an increase in tenant demand in the rental market in September.

Meanwhile, the feedback around landlord instructions continues to highlight a scarcity of listings becoming available in the lettings sector, the report said.

Given this backdrop, rents are expected to be squeezed higher, with professionals suggesting close to 5% growth in rental prices across the UK on average over the next 12 months.

Tarrant Parsons, senior economist at Rics, said: “With mortgage affordability still incredibly stretched, it is unsurprising that buyer activity across the housing market remained subdued in September.

“Although the decision to pause monetary policy tightening a few weeks ago provided a glimmer of relief for the market, interest rates are likely now set to remain on hold for a prolonged period.

“As such, it appears there is little prospect of trends deviating much from the recent picture in the immediate future. That said, the outlook a little further ahead has improved slightly, with 12-month sales expectations moving out of negative territory for the first time in several reports.”

Tom Bill, head of UK residential research at estate agent Knight Frank, said: “A sense of predictability is returning to the UK housing market, which means buyers and sellers can better come to terms with higher mortgage rates.

“House prices will continue to come under pressure but we think most of the correction will happen this year as demand hardens.”

Of the rental market, he added: “The situation has been exacerbated by higher mortgage costs for buy-to-let owners, the prospect of further regulation and demand from tenants who are unable to become first-time buyers.”