Several market indicators improve but stubborn inflation rate suggests storm clouds have arrived

RICS UK Residential Market Survey, May 2023

• New buyer enquiries and agreed sales metrics post least negative readings in twelve months
• National house prices still falling although downward pressure continues to ease
• New instructions indicator moves into positive territory for the first time since early 2022
• Expected further Bank of England interest rate rises will likely dampen positive trends
• Interest rate rises and proposals to abolish Section 21 pushing some landlords to leave the lettings market

The Royal Institution of Chartered Surveyors (RICS) UK Residential Property Monitor for May 2023 revealed that while some positive trends have emerged, expectations about further interest rate rises may introduce renewed downward pressure on the market in the months ahead.

Regarding demand, the net headline balance for new buyer enquiries was -18% (net balance) in May. Although this indicates a subdued trend in buyer demand, the latest reading is up from a net balance of -34% in April and represents the least negative figure over the past twelve months. This trend is consistent across the country, with a less downbeat pessimistic trend for new buyers reported in every region when compared to January figures.

Meanwhile, the agreed sales indicator returned a net balance of -7% this month, noticeably less downbeat than figures of -29% and -18% seen back in March and April respectively. Similarly, the latest net balance for near-term sales expectations was recorded at -7%, representing the least pessimistic view from respondents since May 2022 (up from -17% in April). At the twelve-month time horizon, the sales expectations net balance stands at +2% (virtually unchanged from +3% previously) and is consistent with a generally steady sales outlook.

New instructions rose by a net balance of +14% of survey participants during May. Consequently, this breaks a run of thirteen successive negative monthly readings and marks the strongest reading for the new listings metric since March 2021.

A net balance of -30% of respondents cited a further fall in national prices in May. Even so, this measure has turned less negative in each of the past three reports, having hit a recent low of -46% in February. Within this, the disaggregated data is now showing some noteworthy variations in house price trends across different parts of the UK. In London, for instance, the latest net balance of -3% indicates a mostly steady picture (up from readings of -42% and -11% in March and April).

Alongside this, respondents in Scotland and Northern Ireland witnessed an uplift in house prices. In contrast, prices continue to fall in most English regions, with the net balances across the East Midlands (-68%) and the South East (-48%) seated most deeply in negative territory.

While many metrics clearly indicate some improvement in market conditions, recent disappointing inflation figures will likely lead to the Bank of England taking further action, with further interest rate rises expected to stifle the market.

In the lettings sector, demand still outstrips supply, with further pressures placed on availability as interest rate rises and proposals to abolish Section 21, among other changes contained in the UK Government’s Renters (Reform) Bill, encourage landlords to sell up.

RICS Senior Economist, Tarrant Parsons, said:

"The latest RICS UK Residential Survey feedback indicates a modest recovery in the sales market activity during May, with generally less negativity compared to the end of 2022.

“However, it seems storm clouds are gathered, with the UK's stubbornly high inflation likely undermining the recent improvement in activity by prompting the Bank of England to take further action through interest rate rises, leading to higher mortgage rates and ultimately reducing affordability and buyer demand. The banking sector appears to expect this with many banks and building societies already introducing products with higher interest rates.

“Interest rate rises are also impacting the rental sector and combined with looming reforms proposed in the government’s Renters (Reform) Bill, landlords are increasingly deciding to leave the sector and sell up property, causing further constraints to lettings supply.”

-ENDS-

Notes for editors:

You may access the latest market survey in full at this link.

Commentary from survey respondents regionally can be found in the economic pdf on the back pages – you are free to use these.

The RICS Residential Market Survey is released on the second Thursday of every month apart from January.

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