UK Housing Demand Froze in January Market Turbulence, RICS Says

The Royal Institute of Chartered Surveyors (RICS) has reported a significant slowdown in the UK housing market during January, with demand for housing broadly flat compared to December. The survey suggests that the recent spike in gilt yields, which reached their highest levels since the 2008 financial crisis, has caused potential buyers to put deals on hold until they saw what happened next. This flatter picture in housing demand and sales is likely linked to the turbulence seen across money markets in the first half of January.

Tarrant Parsons, RICS’ head of market analytics, commented that growth in buyer demand “lost a bit of momentum through the early part of the year, with this flatter picture likely linked to the turbulence seen across money markets in the first half of January.” Last month, UK government bonds, also known as gilts, saw a significant sell-off, causing yields to rise sharply and reach their highest levels since the 2008 financial crisis. The sell-off, which was part of a broader global trend, blew over in about two weeks but appears to have caused potential buyers to put deals on hold until they saw what happened next.

Sales are still expected to accelerate significantly this year, however. When asked whether they expected sales to increase in the next year, a net balance of plus-30% of respondents said yes. Experts suggest that this is partly down to the Bank of England cutting interest rates in February by a quarter point to 4.5%, their lowest level in more than 18 months. The turbulence did not stop house prices from rising across the country, however, with many more agents reporting increases during the month.

Mr. Parsons added: “Moving forward, respondents continue to envisage a slightly positive near-term outlook for sales activity. This should be further supported by the unwinding of some of the pressures around mortgage interest rates over the past couple of weeks.” Sarah Coles, head of personal finance at Hargreaves Lansdown, said the Bank’s rate cut is “likely to reignite buyer enthusiasm”. “Unfortunately, those new buyers have to contend with higher house prices, which rose again in January. Given that mortgage rates remain relatively high compared to recent years, it means a real stretch for anyone trying to get onto the property ladder.”

The rental market saw demand remain roughly the same, while respondents said fewer landlords were making property available. As a result, most expect rents to keep rising going forward, despite renters already being squeezed harder than homeowners, according to recent research. Ms. Coles added that a hike “could end up pushing millions of renters over the edge – forcing them to make incredibly difficult decisions about how to cut their costs to stay on track”.

In conclusion, the UK housing market experienced a slowdown in January due to market turbulence and uncertainty around mortgage rates. However, experts remain optimistic about the outlook for the year, with the Bank of England’s rate cut and the unwinding of some of the pressures around mortgage interest rates expected to support sales activity. The rental market, however, continues to face affordability challenges, with rents expected to keep rising.