Sales activity in the UK residential property market is increasing but a slow start to 2017 is expected due to a lack of stock, according to the latest index report.
Interest from new buyers increased marginally in November 2016 for the third consecutive month but the figure remains historically low with 13% more surveyors reporting a rise in new buyer enquiries rather than a fall, says the report from the Royal Institution of Chartered Surveyors (RICS).
However, demand has increased in most parts of the UK leading to a further rise in agreed sales. Some 9% more respondents across the country reported a growth in activity over the month, but while this is the highest reading since February, caution remains, according to feedback.
RICS points out that it is a stark fact that more homes are needed as supply shortages remain a constraining feature and the growth in sales activity, albeit only modest, alongside a lack of new instructions, has led to a further decline in homes for sale. Anecdotal comments suggest that many respondents expect the beginning of 2017 to be quiet reflecting the lack of fresh properties coming to market.
As stock continues to dwindle, the headline RICS price balance has risen to 30%, which is the highest reading since April and most of the UK is seeing an increase in prices. For the second consecutive month, the strongest growth was reported in the West Midlands and North West of England.
The report explains that near term expectations continue to point to rising prices over the coming three months with 14% more surveyors anticipating an increase rather than a decline.
Furthermore, prices are projected to rise, to a greater or lesser degree, across most parts of the UK. The outlook over the year to come is positive in all areas with a net balance of 40% of respondents forecasting house price growth.
However, contributors are less confident in the prospects for London prices relative to other areas over the year to come with larger properties in the capital expected to show the slowest growth. Comments from respondents suggested that tax changes are still weighing heavily on this part of the market.
‘A key issue for the housing market is the slowdown in transaction activity since the spring, which is clearly being reflected in the RICS agreed sales data as well as in official figures,’ said Simon Rubinsohn, RICS chief economist.
‘Although there are some signs that the numbers may begin to edge upwards in the new year, the combination of macro uncertainty, the ongoing supply shortfall, with stock levels around historic lows, and the myriad of tax changes impacting on buyers suggest that any pick-up in activity will be relatively modest,’ he pointed out.
‘This is significant, not just for the housing market itself, but also for the wider economy given how much of consumer spending is tied in with home purchases,’ he added.
When it comes to the lettings market the report shows that tenant demand rose only marginally, as is usual around this time of year, with 15% more contributors reporting a rise rather than a fall. Meanwhile, new landlord instructions fell slightly at the headline level with 6% more contributors seeing a decline rather than a rise. Tenant demand continues to outpace supply across most areas and rents are expected to continue to rise.
The London rental market remains somewhat different with surveyors continuing to report a decline in tenant demand, a trend that has been visible for most of the last year, and rent expectations in negative territory for the fifth consecutive month.
The report concludes that tenant demand continues to outpace supply across most areas and rent expectations remain firmly in positive territory, with 17% more respondents forecasting further growth rather than a fall.
According to Robert Grigg, managing director of property finance at Hampshire Trust Bank, the cooling of property prices is not surprising. ‘While the rise in house prices remains modest, in order to help more people onto the property ladder we need to make home ownership more affordable, increasing the supply of houses to meet the growing demand,’ he said.