RICS’ latest UK Residential Survey has found that the housing market gained momentum in July as the recovery continued, with the Stamp Duty holiday, introduced from the 8th July, seemingly playing a significant role in lifting demand.
However, respondents do not expect this impetus to continue as wider government support measures begin to be phased out later in the year.
Growth in new buyers led to a headline net balance of +75% of survey participants who noted an increase over the month. This marks the second consecutive report in which demand has rebounded firmly. Similarly, new instructions being listed onto the sales market rose sharply, evidenced by a net balance of +59% of respondents reporting a rise (up from a reading of +41% in June).
Alongside this, a net balance of +57% of respondents nationally saw a rise in agreed sales in July. This is again indicative of a strong pick-up in transaction levels after the hefty declines reported a few months ago. This was mirrored across all parts of the UK.
Looking ahead, continued growth in sales at the headline level over the next three months is expected, with a net balance of +26% of contributors anticipating an increase. However, further out, 12-month sales projections remain negative. Indeed, a net balance of -10% of respondents foresee sales tailing off over the year ahead, with concerns about the prospects for the UK economy and the impact this will have on employment as the furlough scheme expires in October.
House prices moved out of negative territory for the first time since March. Across the UK in aggregate, a net balance of +12% of respondents reported an increase in house prices during July, a noticeable turnaround on the reading of -13% in June. Prices rose in virtually all regions/countries covered. London represents the sole exception, where a net balance of -10% of respondents cited a decline (albeit this is significantly less negative than the reading -54% posted beforehand).
As to the future, at the national level, a net balance of +8% of contributors expect prices to increase over the next twelve months. As such, this latest reading is consistent with a flat to marginally positive outlook for house prices in the year ahead.
In the lettings market, respondents noted a firm recovery in tenant demand over the three months to July (seasonally adjusted quarterly time series), posting a net balance of +35%. This denotes a sharp rebound compared to the reading of -44% returned in the previous quarter. With regards to new landlord instructions, a net balance of +6% of respondents reported a pick-up over the survey period. Although only marginally positive, this is the first occasion since 2016 in which the flow of landlord instructions has reportedly improved.
Rental growth expectations for the next three months also recovered during July, with the net balance picking up to +20% from -35% previously. For the coming 12 months, contributors continue to project rents will rise by just over 1% at the national level. That said, while rents are expected to rise across virtually all parts of the UK over the year ahead, London stands out as the only region in which projections are still negative, at -1%.
Simon Rubinsohn, RICS chief economist, said: “The strong impetus provided to the housing market is evident both in the results of the RICS survey and many of the anecdotal comments from respondents. However, it is interesting that there remains rather more caution about the medium term outlook with the macro environment, job losses and the ending or tapering of government support measures for the sector expected to take their toll. Significantly, some contributors are now even referencing the possibility of a boom followed by a bust.
“Meanwhile one of the other notable aspects of the survey is the feedback that there is a greater interest in properties that offer some features that help better manage future lockdowns whether it is access to green spaces, gardens or balconies.”
Tomer Aboody, director of MT Finance, added: “With the stamp duty holiday in place at least until March and hopefully longer, this should help support the housing market to a degree. No doubt there will be some negativity and a potential fall in confidence after government schemes such as furlough have ended but a possible downward trend should be eased by banks already preparing a loss buffer (HSBC), allowing them to work more closely with borrowers who might be struggling with repayments.
“Those areas particularly hard hit are likely to be the top end of the market in the £5 million-plus bracket for both houses and new-build flats, which are typically bought by investors from overseas who are looking for a central London holiday home or rental investment. With more people considering working from home more often, locations both in and out of London with a village feel, near green spaces, should hold strong and values could well increase.
“No doubt there will be challenges ahead but hopefully with debt remaining cheap, lenders could be more flexible, taking into consideration rates, LTVs, deposits and earnings, and getting back to old-school bespoke lending, rather than a tick-box exercise.”