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16th Oct 2018 RICS UK Residential Market Survey: September 2018

Sales outlook turns more cautious

• New buyer enquiries weaken slightly while twelve month sales expectations turn negative
• Prices remain flat nationally with regional disparity still pronounced
• Volume of fresh listings continues to fall in both the sales and lettings markets

The September 2018 Royal Institution of Chartered Surveyors’ (RICS) UK Residential Market Survey results show a slight weakening in national new buyer demand for the second successive report. Respondents continue to cite the mixture of affordability constraints, a lack of stock, economic uncertainty and interest rate rises to be holding back activity to a certain degree. What’s more, forward looking indicators have now turned a little more pessimistic with regards to the sales outlook.

Starting with new buyer demand, the headline enquiries gauge slipped again during September, with the net balance reading coming in at -11%, compared to -9% in August. Having remained relatively stable over the four months prior to this, recent results appear to be pointing to a renewed fall in new buyer enquiries. At the same time, the volume of new sales instructions coming to the market also deteriorated for a second month running. Unsurprisingly, this leaves average stock levels on estate agents’ books close to record low levels, with limited choice likely to be one factor hampering demand. Furthermore, survey participants continue to report that the level of appraisals being undertaken remains down on an annual comparison, with the net balance sitting at -20%. As such, there is nothing from this indicator to suggest a pick-up in sales listings is imminent.

In another sign of a market struggling for momentum, the time taken to complete a sale (from initial listing) has increased to approximately 19 weeks. This represents the longest duration since the series was introduced back in February 2017. In terms of sales volumes, the newly agreed sales net balance remained slightly negative across the UK as a whole, moving to -9% from -13% in the previous report.

The regional breakdown shows a flat to slightly negative sales trend in virtually all parts of the country. Northern Ireland and Wales were the only areas reported to have seen a rise in sales during September. Even so, this growth was relatively modest. As to the future, near term sales expectations slipped for a fourth consecutive report at the national level, with the net balance coming in at -16%. Further out, over the next twelve months, sales expectations have now also turned negative on a UK-wide basis. Again, respondents across Northern Ireland remain most optimistic with regards to the sales outlook, while, at the other end of the scale, those in the South East are now the most cautious.

The headline price net balance inched down to -2% in the latest results, compared with +1% in August. Consequently, house prices have remained more or less unchanged at the national level in each of the past five months. That said, with a lack of affordability in parts of the country remaining a key challenge, the subdued sales picture in these areas is still placing downward pressure on prices. Indeed, while respondents in London continue to report the steepest fall in house prices on a regional comparison, the already negative readings for the South East and East Anglia deteriorated a little further in the September figures.

Elsewhere, however, house prices continue to rise firmly across much of the UK, with the West Midlands, Northern Ireland and Scotland posting the strongest growth. Going forward, respondents in almost all areas, with the exception of London and the South East, are anticipating prices will drift higher over the coming twelve months, led by expectations in the North West of England and Northern Ireland.

In the lettings market, tenant demand rose at the national level for the fourth successive month (on a non-seasonally adjusted basis). Set against this, instructions to let remain in decline, with the survey’s series for landlord listings having been stuck in negative territory since October 2016. Rental projections for the year ahead point to growth of just over 2%, with this rate anticipated to accelerate, averaging around 3.5% per annum, over the next five years.

In London, tenant demand has staged a sustained recovery over recent months, increasingly outstripping supply. Although rents are still anticipated to see little change in the near term, five year expectations point to stronger rental growth coming through further ahead.