9th February 2017
A shortage of supply in both the sales and lettings residential markets in the UK presents a huge challenge for housing with sales flat and prices and rents set to continue rising, according to chartered surveyors.
UK house sales still lacked momentum in January and prices and rents increased mainly due to a shortage of available properties with the lettings sector likely to see supply tighten as buy to let investment is expected to decline.
The latest monthly report from the Royal Institution of Chartered Surveyors (RICS) reveals that new landlord instructions in the lettings market failed to improve for a fourth consecutive quarter across the UK in the first month of 2017.
Moreover, respondents predicted that this issue would worsen over the medium term and indicated that they expected landlords to decrease the size of their portfolios over the next three years.
Changes to Stamp Duty in April, alongside scheduled cuts to mortgage interest tax relief, were both seen as important factors diminishing the attractiveness of buy to let as an investment as 28% more respondents felt that landlords were likely to decrease the size of their portfolio over the next twelve months.
Over the next three years some 26% more contributors expected landlords to scale-back their portfolios. It is, however, worth noting that the sentiment survey was obtained prior to the latest housing announcements in the Government’s White Paper.
During the three months to January, tenant demand for rental properties continued to increase at the national level with the continued imbalance between supply and demand expected to squeeze rents higher. The exceptions to this pattern across the UK are to be found in London and Scotland where tenant demand is slipping back a little. Rent expectations essentially remain flat in Scotland, but are more downbeat in the capital.
Over the next five years, rental projections point to a cumulative increase of just over 25%, outpacing house price inflation over this time period and respondents anticipate prices will rise a little under 20% on the same basis.
New buyer enquiries were more or less unchanged during January, although, with only 5% of surveyors reporting an increase in demand, this is the lowest reading since August 2016. New instructions, having remained flat for the past few months, deteriorated in January and have now failed to post a positive reading in eleven consecutive months.
Indeed, the report also shows that 11% more chartered surveyors saw a fall in new instructions in January rather than a rise, leaving average stock levels on agent’s books still close to historic lows.
At the same time, sales were flat for the second month in succession with 1% more chartered surveyors seeing a fall in sales over the month. This headline reading does mask regional variation with the sales balance rising firmly in the South West while at the other end of the scale, it declined in central London.
Sales are however predicted to improve in the near term with 15% more respondents expecting a rise over the next three months nationally. What’s more the balance of respondents predicting that sales will increase over the year to come reached a one year high of a +37 net balance.
Meanwhile, 25% more respondents saw a rise in prices, rather than fall in January, as prices tick back up. Looking across the UK, the past price balance deteriorated slightly in central London for the second straight report and has now been in negative territory for 11 consecutive months.
Most other parts of the UK continue to see prices rise, with the North West returning the highest net balance for a third survey running. Prices are expected to continue to rise over both the next three and 12 months across the UK in all regions except central London.
‘The scale of the challenge Government faces as it announces its new approach to housing is clearly demonstrated in the results from our latest survey,’ said Simon Rubinsohn, RICS chief economist.
‘Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium term view of RICS professionals working up and down the country is that both house prices and rents will over the medium term continue to grow at a faster pace than wages putting even greater pressure on affordability. Whether the measures announced can ease this this trend remains to be seen,’ he added.