The steep rise in mortgage interest rates and anxiety about the prospect of an economic downturn sent new house buyer inquiries to an eight-month low in June, according to a survey of estate agents.
A fall in the number of buyers marked “a renewed deterioration in UK home sales”, said the Royal Institution of Chartered Surveyors (Rics), which carried out the survey. However, the market was in better shape than the period after Liz Truss’s disastrous mini-budget last autumn.
Most estate agents reported a growing reluctance among potential homebuyers to buy a property while there was speculation about significant interest rate rises over the coming months.
The Bank of England has signalled it will push its 5% base rate higher next month in response to inflationary pressures that kept the consumer prices index (CPI) at 8.7% in May.
Mortgage rates for two-year fixed loans rose to 6.7% on Wednesday – the highest level since the middle of the financial crisis in August 2008, according to data from Moneyfacts.
Financial markets expect the central bank to continue raising the cost of borrowing. City analysts have forecast the base rate will be above 6% by the end of the year, sending mortgage rates soaring towards 8%.
Rics said an index of new buyer enquiries slipped from a net balance of -20% in May to -45% in June, which was the lowest reading since October 2022’s balance of -51%.
Respondents across all parts of the UK reported a firmly “negative trend in buyer enquiries compared with May”, Rics said.
Simon Rubinsohn, the chief economist at Rics, said the supply of homes was falling largely in line with declining demand, preventing a steep decline in prices.
“The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key Rics metrics regarding buyer enquiries, sales and prices which have all retreated over the past month,” he said.
“Inevitably in this environment, activity levels are likely to remain relatively subdued. However, an important message coming back from Rics agents is around ensuring prices are set with an eye on the market conditions of today, rather than the recent past; when this is done, sales are taking place.”
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UK house prices experienced their biggest annual fall in 12 years in June, Halifax data showed earlier this month.
Rubinsohn said the same balance of supply and demand was absent from the rental market where a rising number of tenants are chasing a declining number of available properties for rent.
June’s survey revealed the largest decline in landlord instructions since May 2020.
“Looking across to the rental market, a net balance of +40% of respondents saw an increase in tenant demand. However, at the same time, the net balance for landlord instructions dropped to -36%,” Rubinsohn said.
