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New buyer enquiries fell for the third month in a row in July, according to the latest Royal Institution of Chartered Surveyors (Rics) report, as the cost of living crisis competes with low supply in the housing market.

A net balance of -25% of survey participants reported falling new enquiries last month compared to -27 in June, “which is the longest stretch of falling demand from buyers since the early stages of the pandemic, and is evident across all of the UK”, says the body’s July RICS Residential Market Survey.

It adds that agreed sales also edged down, with the latest net balance remaining modestly negative at -13%, compared to a reading of -14% previously.

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The survey says: “Higher interest rates and the cost of living crisis are cited by contributors to be causing the drop in market activity, although it’s important to note that the survey sample was mostly gathered before the Bank of England’s latest 50 basis point rate hike.”

But it adds that “a lack of supply remains a crucial factor in underpinning continued growth in house prices”.

Looking ahead, the report says sales expectations over the next three months slipped to -20% in July, compared to -11% in the prior month. Over 12 months, the sales expectations net balance fell to -36% among respondents, down from -21% last time, which is “the most downbeat figure returned since March 2020”.

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In the rental market, tenant demand continues to rise, with a net balance of +36% of respondents reporting an increase. However, a net balance of -8% of participants noted a decline in new landlord instructions. The report says rents are expected to continue to rise sharply over the near-term by a net balance of +57%, with all parts of the UK anticipated to see a further pick-up.

The report comes amid growing concerns about the cost of living crisis, which last week saw the Bank of England hike interest rates by 50 basis points, lifting interest rates to 1.75%, the highest rise in 27 years. Inflation stood at 9.4% in June, a fresh 40-year high.

Earlier this month, UK house price annual growth eased to 11.8% in July making the average price of a home £293,221, according to the latest Halifax house price index, while transaction prices slipped for the first time in 13 months.

Rics senior economist Tarrant Parsons says: “Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum.

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“With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.

“Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.”

Hargreaves Lansdown senior personal finance analyst Sarah Coles adds: “Bidding wars are increasingly giving way to more cheeky offers, particularly on pricier properties. Half of agents say that properties under £500,000 are no longer selling for more than the asking price, while those priced at more than £1m are being forced to accept lower offers. It’s another sign that the property market is starting to turn.

“Sales are also falling, and agents expect them to keep dropping in the coming months. Meanwhile, after such a long time of ever-increasing buyer numbers, we’ve seen a second month where fewer buyers are on the hunt for a home. House prices are still rising, because buyers still vastly outstrip sellers, but they’re starting to ease a little.

“Plenty of agents are feeling the impact of less demand. Others are highlighting that even when people decide to buy, life continues to get harder, so more sales are falling through as they worry about job security and rising prices. Some agents say that agreed prices are being renegotiated.

“However, it’s still a very mixed picture, and some agents say it’s as busy as it has ever been, and some buyers are in a hurry to snap up a property before mortgages get even more expensive.

“The rental market remains horrible. The number of tenants is up again, including would-be first-time buyers who are worried about the cost of living, and have decided to rent again instead.

“Meanwhile, the number of landlords has dropped for the third month in a row. Some are warning that legislative changes are driving more landlords out of the market, so with nobody filling the gap, shortages are getting even worse. It means that agents aren’t expecting any let-up in rising rents.”

By Roger Baird

Source: Mortgage Finance Gazette

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