House Price Growth Runs Out of Steam

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House Price Growth Runs Out of Steam

July house price growth continued to slow in the UK, while key indicators covering price expectations, buyer enquiries, agreed sales and new instructions all remained firmly negative, according to the latest RICS UK Residential Market Survey. 

UK house price growth posted the lowest survey reading in three years in July.  Just 5% more respondents nationally saw a rise rather than fall in prices, a downward trend that is evident across the UK.

The London price indicator remains more downbeat (net balance of -33%) which is broadly consistent with an outright drop in prices in the Capital. As price growth slows for now, near-term price expectations across the UK were negative for the third month in succession with 12% more respondents predicting a decline in house prices over the next three months.

As activity falters, interest from new buyers in the UK also continues to wane, with the results showing a fourth consecutive month of falling demand (net balance of -27).   

Record Lows of Housing Supply
Lack of stock in the housing market also continues to cause ripples, with new instructions falling again throughout July.  33% more respondents to the survey have seen a fall in new instructions and supply is at or around record lows in most parts of the UK.  In line with the dip in demand, and the worsening supply position, sales declined sharply.

Across the UK, 34% more respondents reported a fall in transactions, with the monthly pace of decline in July and June at its fastest since 2008.  This reflects a continuation of a trend that started in April following the implementation of the tax surcharge on investment purchases. Anecdotal reports provided by contributors to the survey suggest both the tax change and the ongoing fall-out from the EU referendum are contributing to the current mood in the market. However, looking into the comments left by members suggests conditions vary markedly between agents. A large portion of respondents note, after an initial wobble, activity has returned to normal, while others feel Brexit has only had a very modest or negligible impact.

Resilient Confidence
Significantly, looking a little further out, key RICS indicators are up in July from June and show both sales and price expectations at the twelve month time horizon returning to positive territory, albeit relatively modestly so and well down on the numbers recorded through 2015 and the early part of this year.

Simon Rubinsohn, RICS Chief Economist, commented: “The housing market is currently balancing a raft of somewhat mixed economic news alongside the latest policy measures announced by the Bank of England, which have already begun to lower cost of mortgage finance. Against this backdrop, it is not altogether surprising that near-term activity measures remain relatively flat. However, the rebound in the key twelve month indicators in the July survey suggest that confidence remains more resilient than might have been anticipated.

“Critically, it is hard to escape the stark message regarding supply that is evident in the latest set of results with RICS data showing inventories on agents books around historic lows. This is a long running story that may have been exacerbated by recent events but clearly needs urgent action from the new government.”

Jeremy Blackburn, RICS Head of Policy, adds: “The new Prime Minister has rightly cited housing in her list of priorities and pledged a major house building campaign. With the RICS residential survey again showing a lack of supply in the housing market across the UK, we need a coherent and coordinated strategy from government that builds on previous plans, and includes strategy for a functional Private Rented Sector (PRS) as an important part of the housing mix.  

“Any new PRS policy should focus less on penalising small landlords and more on incentivising institutionalised PRS building at scale and managed to higher standards.  Developers and house builders have a huge part to play in increasing supply but we must pull on all the levers available to us, including councils, housing associations and community land trusts - we need all delivery mechanisms.”

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