House price growth continued to slow in the UK in July while key indicators covering price expectations, buyer enquiries, agreed sales and new instructions all remained firmly negative, according to the latest results from the RICS Residential Market Survey.

UK house price growth posted the lowest survey reading in three years in July. Just 5% more respondents nationally saw a rise rather than fall in prices, a downward trend that is evident across the UK. The London price indicator remains more downbeat (net balance of -33%) which is broadly consistent with an outright drop in prices in the capital.

RICS said that as price growth slows for now, near term price expectations across the UK were negative for the third month in succession with 12% more respondents predicting a decline in house prices over the next three months.

As activity falters, interest from new buyers in the UK also continues to wane, with the results showing a fourth consecutive month of falling demand (net balance of -27).

Lack of stock in the housing market continues to cause ripples, with new instructions falling again in the month of July. 33% more respondents to the survey have seen a fall in new instructions and supply is at or around record lows in most parts of the UK. In line with the dip in demand and the worsening supply position, sales declined sharply. Across the UK, 34% more respondents reported a fall in transactions, with the monthly pace of decline in both July and June at the fastest since 2008.
This reflects a continuation of a trend that started back in April following the implementation of the tax surcharge on investment purchases.

RICS said anecdotal reports provided by contributors to the survey suggest both the tax change and the ongoing fall-out from the EU referendum are contributing to the current mood in the market. However, looking into the comments left by members suggests conditions vary markedly between agents. A large portion of respondents note, after an initial wobble, activity has returned to normal, while others feel Brexit has only had a very modest or negligible impact.

Significantly looking a little further out, key RICS indicators are up in July from June and show both sales and price expectations at the 12-month time horizon returning to positive territory, albeit relatively modestly so and well down on the numbers recorded through 2015 and the early part of this year.

Simon Rubinsohn, chief economist at RICS, said: “The housing market is currently balancing a raft of somewhat mixed economic news alongside the latest policy measures announced by the Bank of England, which have already begun to lower cost of mortgage finance. Against this backdrop, RICS said it is not altogether surprising that near term activity measures remain relatively flat. However the rebound in the key 12-month indicators in the July survey suggest that confidence remains more resilient than might have been anticipated.

“Critically, it is hard to escape the stark message regarding supply that is evident in the latest set of results with RICS data showing inventories on agents books around historic lows on average. This is a long running story that may have been exacerbated by recent events but clearly needs urgent action from the new government.”

Andrew McPhillips, chief economist at the Yorkshire Building Society, said: “Demand for properties has dropped significantly since Brexit, as prospective buyers wait to see how it affects markets and their own finances. If this slump becomes more pronounced, it could cause a short-term drop in prices which may see the market self-adjust as buyers look to make the most of the reductions.

“Such an increase in demand would ultimately push house prices back up again so the market may remain volatile in the coming months. But people’s desire to own a home remains strong and combined with the underlying lack of supply that should support house price growth in the long-term.”