UK estate agents gloomiest in 14 years as house prices and sales fall

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House sales and prices fell across the UK in August as high mortgage rates hit property demand, leaving estate agents at their most gloomy about the market in 14 years, according to a leading survey published on Thursday.

The Royal Institution of Chartered Surveyors said its house price balance, which measures the difference between the percentage of surveyors seeing rises and falls in home prices, fell to minus 68 last month from minus 55 in July.

The reading is the lowest since 2009, and well below the minus 56 forecast in a Reuters poll of economists.

The professional body’s report found that new buyer inquiries, a measure of housing demand, declined by two points from July to minus 47 in August, while new sale instructions slid nine points to minus 26.

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Surveyors also reported the weakest assessment of newly agreed sales since the onset of the Covid-19 pandemic, when the property market was in effect shut.

Simon Rubinsohn, Rics chief economist, said the survey pointed “to a sluggish housing market with little sign of any relief in prospect”, adding: “Buyer inquiries remain under pressure against a backdrop of economic uncertainty and the high cost of mortgage finance.”

Column chart of Net balance between proportion reporting rising and falling prices showing Surveyors’ assessment of UK house prices is the gloomiest since 2009

Mortgage rates have risen sharply over the past two years, following 14 consecutive interest rate increases by the Bank of England, contributing to the fall in house prices, transactions and mortgage approvals.

Rates on two-year and five-year fixed deals have fluctuated in recent months as financial markets reassess the likelihood of more interest rate increases, but they remain well above 2022 levels.

Markets expect the central bank to lift rates by a further 0.25 percentage points to 5.5 per cent next week in its bid to tame inflation.

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With the cumulative impact of the 14 rate increases since December 2021 yet to be fully passed through, estate agents’ expectations for the months ahead were also more gloomy.

The net balance of price expectations for the next three months dropped to minus 67 in August from minus 60 in July, while the 12-month horizon was largely unchanged at minus 48, indicating a sharp contraction.

By contrast, soaring mortgage payments boosted rental demand, with survey respondents reporting a net reading of 47 for tenants’ demand and expecting rental prices to rise in the next three months.

New landlord instructions continued to fall, as many landlords leave the sector amid higher interest rates and taxes.

Limited rental supply and high demand have pushed rental affordability to the worst level in 10 years, according to separate research published by property portal Zoopla on Thursday, with the average rent consuming 28 per cent of average gross earnings.

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Myron Jobson, analyst at investment platform Interactive Investor, said that with mortgage rates likely to remain elevated in the near term, buyers would “have little option but to buckle down and figure out how to make the numbers work in the new era of high mortgage rates”.