Agreed sales and average house prices have continued to rise ahead of the stamp duty deadline as the number of new listings entering the market fell for the second month in a row - a perfect storm for those attempting to get their first foot on the property ladder.
According to the latest data and market analysis from RICS, during May, the number of people looking to buy a new home continued to rise, with 32% more respondents noting an increase from prospective buyers. However, supply cannot keep up with this increase in demand, as a net balance of -21% respondents reported another fall in the number of new listings being brought to market.
This widening disparity between new buyer enquiries and new instructions sees the gap at its widest since November 2013, signalling a real mismatch. The RICS data suggests, however, that sales instructions could improve over the coming months, as survey participants are reporting that the number of market appraisals being undertaken is up on a twelve-month comparison (net balance +24%).
As the market sees the impact of people trying to beat the stamp duty holiday coming to an end, newly agreed sales rose once again. This month, +30% of respondents reported an increase, but this is down from +47% in April. Looking further ahead, whilst respondents expect sales to continue to rise in the coming three months, they do so at a lesser rate than reported in previous surveys. In May, +10% of surveyors expect sales to increase over the summer period, down from +21% last month.
The ‘sales boom’ is not anticipated to last, as sales expectations for the coming twelve months have now turned flat, suggesting that the Stamp Duty holiday is the primary driving force behind the latest market trend.
Current market conditions suggest that there is no sign of house price inflation losing any steam. The national house price net balance rose to +83% in May, up from +76% in April and is the fourth successive month in which upward pressure on house prices has intensified. All parts of the UK show that house prices have risen.
In addition, +45% of respondents envisage house prices to rise in the coming three months. Respondents also anticipate that prices will rise for the year ahead, as 64% more respondents anticipate an increase.
A similar pattern exists in the rental market, as tenant demand continues to outstrip supply leading to expectations for rents to rise further in the coming three months. In May, a net balance of +48% of surveyors reported a rise in demand for rental properties. However, for the tenth successive month, the net balance for the number of new rental properties being listed fell, with -21% reporting a fall. This disparity has led to +55% of respondents predicting rents to rise in the coming three months. Looking further ahead, contributors expect rents to rise by around 3%.
Simon Rubinsohn, RICS Chief Economist, had this to say: “Ending a tax break always has the potential to be a little disruptive for a market but with the economy performing better than could have been expected even a short while ago and the cost of money still at rock bottom levels, the principal drivers supporting demand will remain in place even after the expiry of the stamp duty holiday. More challenging is the question of supply, a theme coming back strongly from respondents to the survey both with regard to the sales and lettings markets.
“The governments planning reforms including the relaxation of permitted developments rights is clearly designed to address this problem but the jump in five-year expectations for prices and rents to their highest levels since the middle of the last decade suggests that there is a degree of scepticism about whether this approach will deliver a significant enough uplift in housebuilding numbers.”
Sundeep Patel, Director of Sales at specialist lender Together, adds: “With both house price growth and prices up again in May, the demand for property continues to pick up the pace ahead of the summer months. House prices rose to +83% in May, up from +76% in April and 32% more respondents noted an increase from prospective buyers.
“Although, with today’s data showing -21% of respondents reported another fall in the number of new listings being brought to market and Andy Haldane’s, chief economist at the Bank of England, remark earlier this week about the UK property market being “on fire” - only reconfirms the widely reported market concerns over future supply and demand issues.
“That said, with the Government’s First Homes scheme now launched and the new Planning Bill to prop up more regional housebuilding, it does seem as though there are a few boosts on the horizon for first-time buyers who have their sights set on getting on the ladder in the next few years. Specialist lenders will be crucial in supporting buyers’ property plans as we expect there to be more demand for flexibility post-pandemic, to meet borrowers’ evolving circumstances."