UK housing market slows as interest rate rises bite

The housing market saw a sharp downturn in June, a closely-watched survey showed on Thursday, with both house prices and buyer enquires falling sharply.

According to the latest UK Residential Market Survey from the Royal Institution of Chartered Surveyors, house prices declined to a net balance of -46 in June, from -30 in May.

New buyer enquires also tumbled, falling to -45 from -20 a month previously, the lowest reading since October.

Newly agreed sales were also weaker, plunging to -34 from -8 in May. It is the most downbeat figure since December, when the balance reached -38.

Simon Rubinsohn, chief economist at RICS, said: "The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible.

"Inevitably in this environment activity levels are likely to remain relatively subdued."

However, he also noted: "It is worth bearing in mind that house prices are only very modestly down on their recent highs and well above where they stood prior to the onset of the pandemic."

Kallum Pickering, senior economist at Berenberg, said: "The stabilisation of house prices amid signs of a recovery in housing demand during spring has given way to a fresh slump following the renewed surge in mortgage rates. The rise in borrowing costs follows the sharp jump in market expectations for when Bank of England rates will peak.

"The closely-watched RICS survey points to a sudden and broad-based drop in housing activity and prices in June."

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "The renewed jump in mortgage rates has hit demand hard. Demand will likely continue to trend down over the coming months, as mortgage rates rise further. We expect house purchase demand to languish near its current depressed level for the remainder of 2023.

"The downturn in house prices looks set to gather momentum again, after abating briefly in the spring.

"Indeed, the net balance of surveyors expecting house prices to rise over the next three months plunged to -55 in June, from -31 in May. We continue to expect a peak-to-trough fall in the official measures of house prices of around 10%, with the nadir not coming until the turn of the year."