RICS UK Residential Market Survey – January 2017

Ian Bullock MRICS provides an overview of the January 2017: RICS UK Residential Market Survey

  • Sales market still lacking momentum
  • Prices and rents continue to rise with shortage of stock a key factor
  • Buy-to-let investment anticipated to decline given current policy landscape

The results of the January 2017 RICS UK Residential Market Survey again point to a sales market that is lacking momentum, with transaction volumes and enquiries both seeing relatively little change over the month (on a seasonally adjusted basis). Meanwhile, a shortage of supply remains a challenge in the lettings market – an issue that could worsen over the medium term – as respondents expect landlords to decrease their portfolios over the next three years.

Starting with the sales market, new buyer enquiries were more or less unchanged during January, with a net balance of only 5% of surveyors reporting an increase in demand (the softest reading since August 2016). Having held broadly steady over the past three reports, the flow of fresh sales listings coming to market deteriorated over the period. As such, the national new instructions indicator has now failed to post a positive in reading in eleven consecutive months. This has ensured average stock levels on agent’s books remain close to historic lows.

At the same time, sales were flat (in net balance terms) for the second month in succession, with the national agreed sales indicator remaining at -1%. This headline reading does however mask regional variation. Indeed, the sales balance rose firmly in the South West while, at the other end of the scale, it declined in central London.

Notwithstanding the flat headline sales picture at present, near term expectations did strengthen somewhat, with the net balance rising from +3% to +15%. What’s more, at the twelve month horizon, confidence in the outlook continued to improve as the balance of respondents anticipating sales to increase hit a one year high. Again, Scotland and Northern Ireland exhibit the strongest twelve month sales projections but all areas are expected to see an improvement in activity over the year to come.

Most parts of the UK outside of Central London continue to see prices rise, with the North West returning the highest net balance for a third survey running. Elsewhere, house prices across the South West and Northern Ireland were also reported to have seen strong growth in the latest results.

Going forward, London is the only area where near term prices expectations are negative. At the twelve month horizon, price expectations sit firmly in positive territory across most parts of the UK. London is again the sole exception, where the outlook has now turned marginally negative.

With regards to the rental market, the (seasonally adjusted) data shows the flow of new landlord instructions failed to improve for a fourth consecutive quarter. Furthermore, the lack of listings coming to the lettings market may become an even greater issue ahead, with changes to Stamp Duty, alongside scheduled cuts to mortgage interest tax relief, both seen as important factors diminishing the attractiveness of buy-to-let as an investment. A good number of contributors feel landlords are likely to decrease (rather than increase) the size of their portfolio over the next twelve months. Over the next three years, again a good number of contributors expect landlords to scale-back their portfolios.

That said, during the three months to January, tenant demand continued to increase at the national level, albeit modestly. The imbalance between supply and demand is expected to squeeze rents higher at each time horizon. Over the next five years, rental projections (taken as a three month average) point to a cumulative increase of just over 25%. As a result, rental growth is expected to narrowly outpace house price inflation over this period (respondents anticipate prices will rise a little under 20% on the same basis).

 

Source – RICS UK Residential Market Report – January 2017