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The UK's red hot housing market cooled slightly in September following the end of the stamp duty holiday deadline, as buyer demand stabilised and sales and instructions softened.
RICS's monthly housing market tracker for September showed a steadier trend in buyer demand coming through, following a brief pull-back in the wake of the flurry of activity seen prior to the phasing out of the tax cut.
Despite this, a lack of supply is the key element holding the market back, the survey found.
The September new instructions net balance registered a figure of -35% (compared to -36% last time) and has now been in negative territory for six months running.
In another indication of the constrained supply picture, RICS found that the number of appraisals undertaken during September was below the rate seen twelve months prior, with the net balance slipping to -26% from -10% back in August.
The lack of stock available on the market is creating competition among buyers, thereby pushing up prices. The survey’s national gauge of house price growth posted a net balance of +68% in September.
Although this has eased somewhat relative to the recent high of 82% seen in May, it remains elevated in a historical context nonetheless.
All parts of the UK continue to exhibit strong house price inflation, with Northern Ireland, Wales and the West Midlands the strongest areas.
The data chimes with readings from Halifax that showed UK house prices hit another all-time high in September, rising sharply as the stamp duty holiday taper ended.
Halifax's monthly house price index showed prices rose by 1.7% in September, adding more than £4,400 to the value of the average property.
This rate of monthly growth was the strongest since February 2007, pushing year-on-year house price inflation up to 7.4%.
This also reversed the recent three-month downward trend in annual growth, which had peaked at an annual rate of 9.6% in May. The price of an average house is now as expensive as it has ever been, standing at just over £267,500.
At the national level, RICS found that the new buyer enquiries indicator posted a net balance of zero during September. This is up from -13% last month and is now indicative of a generally stable demand backdrop in aggregate, RICS said.
Notwithstanding the steadier demand picture, the volume of newly agreed sales slipped back for a third month in succession, evidenced by a net balance of -15% of respondents citing a decline (compared to -17% previously).
RICS said that sales were strongest in the north east of England and Wales, where net balances of +26% and +18% were returned respectively.
Near-term sales expectations improved modestly with the expectation of a small acceleration in momentum through the rest of 2021.
That said, the twelve-month sales expectations reading sits in more or less neutral territory, pointing to a largely stable trend in sales over the year to come as whole.
"The housing market will face a much bigger test next year, when mortgage rates likely will rise and affordability will worsen as a larger share of households’ incomes are taken up by spending on essentials, such as food and energy.
"Our forecast for year-over-year growth in house prices to decelerate to about 4% in 2022, from about 8.5% this year, is contingent on our view that Bank Rate will rise only to 0.25% next year. If markets are right that Bank Rate will rise to 0.75% by the end of next year, then house prices probably will struggle to rise at all," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.