There was a fall in new house buyer demand from a response score of -1% in April to -8%, according to the Royal Institution of Chartered Surveyors’ (RICS’) UK Residential Market report for May.
This was the lowest reading for buyer demand since November 2023, and notably down on a score of 6% in March.
RICS said buyer demand was found to be weakest in the South East and South West of England, with response scores of -27% and -23% respectively.
The firm said buyer confidence was starting to dampen as the cost-of-living crisis continued and the prospect of a fall in interest rates became less certain.
Housing market recovery reversed
Justin Young, chief executive of RICS, said: “Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos.
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“While both the Conservatives and Labour have staked their claims as being the party of homeownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options.
“This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.”
Young said the housing market needs policies that think longer-term, not short, “and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation.”
He added that with the market under strain, the supply and demand gap in both lettings and buy side continues to “create issues.”
Young said: “With higher interest rates continuing to hamper first-time buyers, politicians are looking to win support from this group of buyers – as the Conservatives have done with Help to Buy 2.0 and Labour with the Freedom to Buy promise.
“Many millions of voters are feeling both cost of living and market impacts; the political parties see this and are trying to entice the electorate with proposals in their manifestos this week.”
Tarrant Parsons, senior economist at RICS, added: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months.
“Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”
Sales slip, but expected to recover
Respondents also reported a decline in the number of sales agreed during the month, with a net balance reading of -13%, a fall from 4% previously.
Going forward, however, this is expected to improve, as suggested by a response score of 6% for sales volumes over the next three months. This was up from a score of zero previously.
When looking 12 months ahead, respondents predicted sales activity would continue to strengthen, according to a response score of 43%. This was a rise from a figure of 33% in April.
The flow of sales instructions sustained in May, with a score of 16%. This marks six consecutive months of agents reporting a rise of new instructions coming on to their books, which RICS said hinted at a positive shift in future housing supply.
Some 17% of respondents said the number of appraisals taken recently was also higher than last year.
House prices begin to slide
Respondents to the RICS survey pointed to a drop in house prices, with a net balance reading of -17%, compared to -7% previously. RICS said this was the most negative reading since January and a contrast to steady house price changes reported in March and April.
The survey found that, although prices had fallen in all regions of England, there had been increases in Scotland and Northern Ireland.
In the next three months, house prices are predicted to continue dropping, according to a response score of -12%. However, there will be a recovery over the next 12 months, as respondents returned a score of 41% for the year ahead. This was the highest 12-month projection since April 2022.
Rental supply-demand imbalance remains
There was a rise in tenant demand in May, as indicated by a response score of 35%, up from 10% in May.
However, landlord instructions returned a reading of -3%, which was the first time since August 2022 that this measure was in neutral territory.
Respondents expected rental prices to rise in the near term, albeit more slowly than the growth seen over the last year-and-a-half.
This was indicated by a score of 35% for future rental prices, compared to averages of 53% throughout 2023.
RICS said there was a mismatch in the rental sector when it came to tenant demand and available supply, adding that this needed to be addressed by political parties.
