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(Bloomberg) — A slowdown in Britain’s residential property market appears to have bottomed out, according to a prominent survey, as buyers and sellers come to accept the reality of higher borrowing costs and weak sentiment.
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The Royal Institution of Chartered Surveyors’ indicator of new buyer demand was unchanged at minus 34 in May, showing that agents reporting a fall far outnumbered those seeing an increase. The steady reading, however, ended three consecutive months of weakening.
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Sales activity remained subdued and house prices continued to edge lower, though the pace of decline seemed to be easing.
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Tarrant Parsons, head of market research and analysis at RICS, said the figures suggest “the recent downturn in activity may be beginning to stabilize.” Still, he cautioned “it would be premature to interpret this as the start of a recovery.”
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The poll follows separate figures from lender Nationwide, earlier in June, which said May’s UK house prices declined at the fastest pace in almost a year due to higher mortgage costs.
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RICS’ report, which is more forward-looking, paints a picture of a housing market that is gradually adjusting to the effects of the Middle East conflict. Prospective buyers are grappling with a jump in borrowing costs triggered by the war, and a slowdown in real wage growth.
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Sales expectations over the next three months, as measured by the RICS survey, improved slightly, but remained deep in negative territory. Surveyors are more optimistic about the property market’s longer term fortunes as sentiment in the year ahead turned slightly positive in May.
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Caution remains the dominant mood, however. Households are delaying big-ticket purchases and preparing for a jump in energy bills, which could make it harder to save for a deposit.
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Prior to the war, the Bank of England was expected to keep cutting interest rates, but now the market sees one or two hikes by the end of the year. Policymakers have so far kept rates unchanged but meet again next week.
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“The prospect of further rate rises cannot be dismissed, and until there is greater clarity, market sentiment is likely to remain fragile,” Parsons said.
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