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Property demand dips as house buyers hold for interest rate cut

pastel coloured terraced houses in Cliftonwood, Bristol, England Property
Property market confidence is starting to dip, say surveyors. (VictorHuang via Getty Images)

The UK property market has seen a drop in demand from buyers as confidence in an imminent interest rate cut that would bring mortgage costs down has faded.

A net balance of 8% of property professionals saw home buyer demand fall in May, marking the weakest reading since November 2023, according to a survey by the Royal Institution of Chartered Surveyors (RICS). Buyer demand was weakest in the South East and South West of England.

The lack of demand has pushed house prices down, with a balance of 17% of surveyors seeing prices fall.

Scotland and Northern Ireland bucked the trend, with house prices continuing to head upwards.


Survey participants also reported a fall in the number of sales agreed during May, although sales volumes are expected to rise modestly over the next three months.

Mortgage rates edged higher this week as prospective homeowners struggle to find a deal they can afford. The average rate on a two-year fixed deal this week stood at 5.99%, higher than las week's 4.89%, while rates for a five-year deal came in at 5.46%, above last week's 5.36%, according to figures from Uswitch.

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This follows the Bank of England's (BoE) decision to leave UK interest rates on hold at their 16-year high of 5.25% for a sixth consecutive time. The latest data suggests that future homeowners are waiting for an interest rate cut to get on the housing ladder.

Tarrant Parsons, RICS senior economist, said: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months.

“Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”

The outlook 12 months ahead remains relatively upbeat, with 43% of survey participants anticipating an uplift in sales activity, rising from 33% in April.

Read more: UK economy flatlines in April as bad weather hits spending

It is, however, a completely different picture when it comes to the UK's lettings market, with demand far outstripping supply, leaving renters tackling rising living costs and falling affordability levels.

Tenant demand rose to 35%, up from the 10% in May. Meanwhile, new landlord instructions, which are landlords in the market offering property for rent, were flat.

"While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options," RICS chief executive Justin Young said.

"This particular demographic — typically made up of people aged between 18 and 40 — has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.

“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation. With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues."

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