UK house price growth slows to its weakest since July 2020

UK house prices rose at the slowest pace since the start of the coronavirus crisis last month, with rising mortgage rates starting to bite.

New buyer inquiries fell for the fifth straight month and expectations for the coming year point to a slight price decline, according to the monthly survey by the Royal Institution of Chartered Surveyors (RICS).

The RICS house price balance – which measures the difference between the percentage of appraisers reporting price increases and the percentage of appraisers seeing a decline – fell sharply to +32 in September from +51 in August, indicating a slowdown in price growth.

The findings caused a drop in the prices of a number of housing stocks on Thursday morning Taylor Wimpey down 4.66 percent at 82.37p and Berekley Group down 0.28 percent at 3,181.00 pence.

September’s position was the weakest since July 2020 and a separate balance for sales volumes was the most negative since May 2020, the figures show.

Experts stressed that rising interest rates and an uncertain macro picture have taken their toll on the market, with the projected rise in mortgage rates over the next six months expected to outweigh any increase in the stamp duty cut.

New sales instructions also continued to fall, while inventory levels remained at historically low levels.

According to the findings, brokers have an average of only 34 homes on their books and the pipeline appears to have deteriorated further, with net new market valuations falling to -20 percent (from -3 percent in August).

RICS chief economist Simon Rubinsohn said: “While the overall price balance remains positive for now, storm clouds are visible in the deterioration in near-term expectations for both pricing and sales. Looking further afield, the picture painted by the RICS survey has clearly shifted in a negative direction.’

After a huge flight during and after the COVID-19 lockdowns as homeowners sought larger homes, the UK housing market has cooled recently

How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it’s hard not to envision further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labor market is starting to turn around.’

After booming during and after the Covid-19 lockdowns as homeowners sought larger homes, the UK housing market has recently cooled.

Mortgage lender Halifax has reported month-on-month falling prices in two of the last three months. Rival lender Nationwide says UK house prices have not risen monthly in September for the first time since July 2021.

The Bank of England has raised borrowing costs from 0.1 percent in December 2021 to 2.25 percent now.

With the BoE’s next policy announcement on Nov. 3, investors are betting on a full percentage point hike as it tries to get a grip on inflation, which could be driven up by the new UK government’s tax-cutting plans.

A rise in borrowing costs in the financial markets, fueled by investor concerns about the additional borrowing brought about by government plans, has pushed mortgage rates sharply.

Rubinsohn said the mortgage market has yet to settle “but it is difficult not to foresee further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labor market begins to reverse.”

A recent cut in the UK stamp duty on property purchases, part of Minister Kwasi Kwarteng’s tax cut package, would not offset the rise in mortgage costs, RICS said.

In the rental market, tenant demand picked up, along with a decline in landlord instructions.

As a result, RICS said short-term expectations point to further strong rental growth over the next three months.