The latest forecast for UK house prices suggests downward pressure on the market. The June 2023 RICS UK Residential Survey, gives us valuable insights from sales market experts and surveyors. This gives us a frontline perspective on what lettings agents and surveyors are witnessing. When it comes to seeing immediate house price falls, this is the best indication of a real time housing market crash.
With the spotlight on rising interest rates, we’ll explore how these fluctuations are impacting property pricing, sales, and buyer enquiries. As they rise, borrowing money for mortgages becomes costlier. This may cause potential buyers to hesitate, leading to a decrease in property demand. At the same time, homeowners are downsizes or moving into rented accommodation.
Consequently, the housing market might witness a transition from buying to renting, with tenants expressing concerns about larger property running costs. This volatile market will drive down house prices. The RICS UK Residential Survey is a strong forecast for UK house prices. This is because it provides immediate insight into expectations around house prices, and transactional volumes.
Disclaimer: This is not financial advice and you are responsible for your own financial decisions. I am not a mortgage broker or advisor and I don’t give financial advice! Please consult professional advice before making any kind of mortgage decision.
Understanding the Impact of Rising Interest Rates on Housing Market Activity
The sales market has been a whirlwind of change, as evident from key statistics from the June 2023 RICS UK Residential Survey. With respect to new buyer enquiries, the national net balance slipped to -45% in June, down from a reading of -20% the previous month. This decline signifies a considerable decrease in buyer interest, likely influenced by rising interest rates.
Another critical aspect is house prices, where the national net balance fell to -46% in June, declining from a figure of -30% previously. This downward trend indicates a reduction in property prices amid the ongoing fluctuations, which can be attributed to the impact of rising interest rates.
When it comes to newly agreed sales, the headline net balance plummeted to -34% in June. This is notably weaker than the figure of -8% posted last time around. This sharp decline suggests a slowdown in property transactions, possibly influenced by increasing borrowing costs. Moreover, near-term sales expectations deteriorated to post a net balance of -36% in June, a four-month low, down sharply from the reading of -9% seen previously.
RICS Forecast For UK House Prices In 2023
On a twelve-month view, a net balance of -31% of survey participants foresee sales declining. This indicates a decline in confidence among sellers and buyers due to the negative impact of rising interest rate expectations on market sentiment. Considering the RICs survey 3m house price expectations pretty much mirrored the 2008-09 trend, this appears to be a strong indicator in the direct of house prices. As you can see the RICs forecast for UK house prices shows a negative sentiment trending downwards.
Sales Insights on the Rental Market: Challenges and Opportunities
Surveyors provide valuable insights into the rental market as well. As landlords become more conscious of financial commitments associated with older properties, many are opting to leave the market. Consequently, the availability of rental properties has decreased, driving up rents as tenant demand continues to outstrip supply.
Yet, amidst the challenges, there are opportunities for both buyers and sellers. By staying informed on market trends and pricing strategically, sellers can make the most of their property listings. For buyers, navigating the market amidst rising interest rates may require thoughtful planning and financial prudence. Seeking properties that offer value for money and considering energy-efficient options can be beneficial in the long run.
Below is a brief summary of the comments made by sales agents and surveyors in the June 2023 RICS UK Residential Survey. Overall, the feedback pretty much aligns with the decline in sentiment we can see in the above chart. This adds a qualitative layer of feedback to what has been captured in the house price expectations index.
Forecast For UK House Prices: Key Themes Across Regions
Interest Rate Increases: The impact of rising interest rates is a common concern across regions. It has led to caution among buyers and reduced affordability, affecting sales volumes and prices.
Buyer Caution: Buyers are becoming more cautious due to economic uncertainty and the prospect of further interest rate hikes. This caution is leading to fewer transactions and longer negotiation times.
Market Stalling: Several regions mention signs of the market stalling, with sales slowing down, particularly for higher-end properties. Buyers are waiting to see how the economic situation unfolds.
Realistic Pricing: Realistic pricing is highlighted as a crucial factor in achieving sales. Sellers are urged to be more realistic about their asking prices to match market conditions and secure buyers.
Regional Variations: The housing market conditions vary across regions. While some areas experience robust sales and high instructions, others show signs of a slower market with price reductions becoming common.
Buy-to-Let Attraction: In regions with more affordable property prices, buy-to-let investments remain attractive to buyers from outside the area.
Differences Between Regions:
North East: The market is fairly robust, with affordable property prices attracting buyers from outside the region.
Yorkshire & the Humber: The lower and mid-market remains active, but the upper end is more stifled, and there are signs of nervousness creeping into the market.
North West: Concerns about the impact of rising interest rates on the property market, especially for those coming off fixed-rate mortgages.
East Midlands: Media and climate factors are significantly depressing the market, leading to cautious pricing by vendors.
West Midlands: Solicitor delays in getting to exchange are identified as a major problem affecting sales.
South East: Sellers need to recognize that the 50-year average base rate is higher than recent years and that a 10% decrease in property prices still keeps them relatively high.
South West: The market remains relatively resilient despite inflationary pressures on interest rates, but supply is starting to exceed demand, putting pressure on prices.
Wales: Properties up to £500,000 are selling well, but the market is slower for higher-priced properties.
London: The undersupply in London is keeping property values relatively high, but there is uncertainty due to interest rate increases.
Scotland: The West of Scotland market shows resilience despite economic uncertainty, but other areas may experience a slowdown due to interest rates and the summer holiday season.
Key Points On The Forecast For UK House Prices:
Rising interest rates are a major concern impacting buyer confidence and affordability in most regions.
Market conditions vary across regions, with some areas experiencing robust sales and others showing signs of stalling.
Realistic pricing is crucial for achieving sales in the current market climate.
The impact of media, economic forecasts, and political uncertainty is affecting buyer decisions.
Despite challenges, there are still sales opportunities for properties priced appropriately and in good locations.
House Price Forecasts: How Far Will House Prices Fall?
The UK housing market has reached a tipping point. With house UK house prices having fallen 3.4% year-on-year as of July 2023, house prices are expected to fall further. The timeline for falling house prices and the depth of the trough is still up in the air. This is because all the triggers of a house price crash can take 12-18 month to feed through. For example, I called that the UK housing market in a late stage bubble as far back as January 2022, but knowing the timeline for the house price fall back then was almost impossible.
Estimates for 2023 to 2025 house price falls range from 5% to 45%. Those like myself that saw this house price crash coming as far back at June 2022 estimate the fall in the region of 20-30%. There are some experts that house prices could fall as much as 45%. Only time will tell when it comes to the accuracy of these UK house price forecasts. Based on the RICs house price forecast, the fall in prices will deepen by the end of the year.
Conclusion: Navigating the Dynamic UK Property Market
The UK housing market is indeed a dynamic landscape, presenting opportunities and challenges for all stakeholders. Rising interest rates, fluctuations in pricing, and sales trends are all factors that contribute to the complexity. Everyone in the housing market, including buyers, sellers and renters are experiencing pain.
It’s evident from these surveyor comments that the rental market across various regions in the UK is facing similar challenges of limited supply, increasing demand, and rising rents. Landlords are navigating legislative changes, financial pressures, and uncertainty in the market. The housing shortage and changing economic conditions continue to impact the rental property landscape. The market’s tectonic shift away from low interest rates and borrowing cost has shocked the housing market.
Over time, the addiction to buy to lets may allow priced out renters; who are currently experiencing higher rental prices, to buy as house prices fall. Sellers also need to be alert to the changing environment in order to allow for realistic negotiations. Staying informed, adaptable, and making well-informed decisions will be essential for homeowners and property seekers alike.
