House prices continue to rise across the UK even as demand from prospective homebuyers drops, according to the Royal Institution of Chartered Surveyors (RICS).
The property market is showing signs of cooling off as surveyors report the longest stretch of shrinking buyer demand in the housing market since the early stages of the coronavirus pandemic.
A net balance of 25% of property professionals reported new buyer inquiries falling rather than rising in July, marking the third month in a row of an overall decline.
The RICS report said: “As such, this marks the third successive report in which this indicator has been in negative territory, thereby representing the longest stretch of falling demand seen since the early stages of the pandemic.”
Higher interest rates and the cost of living crisis are cited by contributors to be causing the drop in market activity.
However, the survey was carried out before the most recent Bank of England interest rate hike last week, which was the biggest single rate jump since 1995. According to calculations by UK Finance the interest rate hike will add some £50 per month onto the cost of the average tracker mortgage outstanding.
The average house price in the UK has dropped for the first time since June 2021 to £293,221, according to Halifax’s house price index.
Tarrant Parsons, senior economist at RICS, said: “Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum.
“With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.
“Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.”
A net balance of 63% of surveyors reported an increase in house prices during July, and while this is more moderate than a recent high of 78% in April, it is comfortably above the long-term average and indicates a firmly upward trend, RICS said.
“Bidding wars are increasingly giving way to more cheeky offers, particularly on pricier properties. Half of agents say that properties under £500,000 are no longer selling for more than the asking price, while those priced at more than £1m are being forced to accept lower offers. It’s another sign that the property market is starting to turn," Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said.
"Sales are also falling, and agents expect them to keep dropping in the coming months. Meanwhile, after such a long time of ever-increasing buyer numbers, we’ve seen a second month where fewer buyers are on the hunt for a home. House prices are still rising, because buyers still vastly outstrip sellers, but they’re starting to ease a little," she added.
Looking further ahead, while price expectations for the 12 months ahead have eased, the latest survey findings still indicate that house prices will be higher in a year’s time than they are now.
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “Supply is so low because many people have taken a summer holiday for the first time in two years.
“Autumn will provide the acid test for the property market and we expect annual price growth to slow to single digits as supply picks up and demand cools.”
In the lettings market, tenant demand continues to rise, with a net balance of 36% of property professionals reporting an increase.
With new landlord instructions declining, rents are expected to rise sharply over the near-term, with all parts of the UK anticipated to see a further pick-up, RICS said.
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