Buyer demand and agreed sales improved again in August but uncertainty over mortgage rates continues to threaten a fragile housing market recovery, according to RICS.
The latest UK Residential Market Survey showed the net balance for new buyer enquiries improved to -19%, the least negative reading since January and the fifth consecutive monthly improvement.
Agreed sales also moved further away from recent lows, with the balance rising to -17%. That compared with a low of -38% in April.
While both measures remain in negative territory, expectations among surveyors also improved, suggesting the market may be moving gradually towards greater stability.
SALES OUTLOOK IMPROVES
The three-month sales expectations balance improved sharply from -13% in July to -3% in August, taking it close to neutral.
Looking over the next 12 months, a net balance of +6% of respondents expected sales volumes to increase, up from +3% previously.
House prices remained under pressure, however, with the headline price balance at -28% compared with -29% in July.
New instructions were broadly flat, recording a zero balance, while a market appraisals balance of -17% suggested there was limited prospect of a significant increase in properties coming to market in the near term.
BORROWING COST RISK
RICS warned that uncertainty surrounding the outlook for interest rates remains a potential obstacle to a more sustained housing market recovery.
Tarrant Parsons (main picture, inset), head of market research and analysis at RICS, said: “August’s results show a market that is gradually finding its footing, with key activity indicators having become progressively less negative over recent months. That said, any potential recovery remains fragile and faces two significant near-term tests.
“The Bank of England’s increasingly hawkish tone, on the back of renewed volatility in global energy markets, is a reminder that the borrowing cost outlook could yet deteriorate further. And with the October Budget approaching, speculation over potential changes to property taxation is adding another source of caution for both buyers and sellers.
“As such, headwinds over the shorter term remain pronounced, even though recent market trends have appeared more stable.”
RENT EXPECTATIONS RISE
Meanwhile, pressure continued to build in the rental market.
The tenant demand balance stood at +18%, while landlord instructions remained negative at -14%.
Expectations for rental growth strengthened considerably, with a net balance of +44% of respondents expecting rents to rise over the next three months, up from +33% in July.
Surveyors expect rents to increase by around 3% over the coming 12 months.
Tomer Aboody, founding director of specialist lender MT Finance, said: “With the new prime minister already indicating further and harsher taxes to come for both homeowners and landlords, activity and confidence is more muted.
“Evidently, trying to squeeze every property owner further isn’t the way to encourage the economy or help it flourish.
“How well the year finishes for the housing market will depend on whether or not Andy Burnham is advised against further punitive taxes in the October Budget.”
