House prices set to fall as mortgage costs spike - RICS
UK house prices are poised to fall in the coming months, a closely-watched survey showed on Thursday, as soaring borrowing costs weigh on demand.
According to the latest RICS UK Residential Market Survey, house price growth continued to slow in September, with a national net balance of 32. That was well below both August’s balance of 51, and consensus expectations of 45.
House price growth has now been slowing since April, when the net balance reached a record high of 78, and respondents said they expected that trend to continue.
The government recently doubled the threshold for stamp duty, to £250,000. But respondents said that any potential uplift from the tax cut was likely to be wiped out by "substantial" rises in mortgage rates.
As a result, 12-month expectations for house prices have turned negative, with a net balance of -18 against August’s reading of 3.
Sales also fell in September, to the most negative reading since May 2020, while new buyer interest eased to -36, a fifth month of decline. New instructions were also weaker, with stock levels remaining at historic lows.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty, resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market.
"Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales."
Rubinsohn also warned that mortgage arrears and re-possessions, currently at historic lows, were "inevitably" going to increase over the next year.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "September’s survey provides further evidence that the ongoing surge in mortgage rates is weighing on housing market activity. Not only did the house price balance drop to its lowest level since July 2020, only a couple of months after the market reopened after the first lockdown, the new buyer enquiries balance remained in the bottom 5% of previous readings.
"The ongoing turbulence in the mortgage market means that we expect house prices to fall outright over the next 12-to-18 months."
However, Dickens said the extent of the decline would likely be constrained by ongoing scarce supply and the Bank of England raising interest rates to 4%, and not 6% as predicted by some investors.