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Rising tensions in the Middle East risk weakening confidence in the housing market during what is typically one of the busiest periods for property transactions, as highlighted by the latest Royal Institution of Chartered Surveyors UK Residential Market Survey.
The report suggests the housing market is struggling to gain momentum, with surveyors reporting that economic and geopolitical uncertainty is affecting buyer confidence. Concerns around inflation, interest rates and wider global conditions have weighed on activity after a slightly stronger start to the year.
New buyer enquiries declined again in February, with the headline net balance falling to -26%, compared with -15% in January. Agreed sales also remained weak, posting a net balance of -12%, while near-term sales expectations slipped to -2%. Despite this, the longer-term outlook is more positive, with a net balance of +17% of respondents expecting sales activity to increase over the next 12 months.
Tom Bill, head of UK residential research at Knight Frank commented, “Demand had been recovering after the uncertainty caused by November’s Budget, but the Middle East conflict will dampen sentiment during a traditionally busy period for housing transactions.
“People will still need to move but geopolitical instability will increase the mood of hesitation while rising mortgage rates due to energy price spikes will curb spending power. That said, a weak labour market is one reason that the underlying case for multiple rate cuts this year still stands and the longer-term impact on buyers and sellers hinges on how long the disruption lasts.”
According to RICS, UK house prices were largely unchanged at a national level in February. The headline price net balance came in at -12%, slightly lower than the previous month. Regional differences remain significant, with London (-40%), the South East (-24%) and East Anglia (-26%) reporting the greatest downward pressure on prices, while Northern Ireland, Scotland and the North West of England continue to record firmer price trends.
Surveyors reported weaker expectations for house prices in the short term. The near-term price expectations balance fell to -18% in February, down from -6% in January. Over a 12-month period, however, sentiment remains positive overall, with a net balance of +33% expecting prices to rise, although at a slower pace than previously anticipated. In London, expectations have fallen sharply, with the 12-month balance dropping to +7% from +56%.
On the supply side, new instructions remained largely unchanged, posting a net balance of +2%. Market appraisals were also broadly stable, suggesting little change in the volume of properties likely to come to market in the near term.
In the lettings sector, tenant demand was broadly flat over the three months to February, with a net balance of +2%. Landlord instructions remained negative at -27%, indicating continued constraints on rental supply. Against this backdrop, a net balance of +20% of respondents expect rents to rise over the next three months.
Tim Green of Green & Co. (Oxford) Ltd said the early part of the year has seen more properties coming onto the market, with activity likely to be led by first-time buyers.
Some survey respondents also cited geopolitical developments as affecting confidence. Ian Perry FRICS of Perry Bishop said the conflict involving Iran could have a negative impact on market sentiment.
Tarrant Parsons, head of market research and analytics at RICS, said: “February’s survey highlights renewed volatility in the market. While activity indicators at the start of the year suggested a tentative improvement, the deterioration in the geopolitical backdrop has clearly weighed on confidence.
“The recent rise in oil and energy prices has also increased the likelihood that mortgage rates will remain higher for longer. As a result, near-term expectations have softened. Although the twelve-month outlook remains positive overall, maintaining that trajectory will depend on the recent spike in inflationary pressures easing in the months ahead.”
Also reflecting the latest RICS data, Jeremy Leaf, north London estate agent, commented: “Interestingly, this survey, like most others, does not reflect the particular geopolitical uncertainties prevailing over the past week or so.
“Even before that, it is clear the market was in a cautious state. Confidence has definitely improved this year compared with the end of last but remains relatively fragile and won’t be helped by worries that inflation and interest rates may not have peaked after all, as was expected only a few weeks ago.
“On the ground, we have seen no sharp reactions one way or the other with all says agreed proceeding other than for non-property related market reasons.”
As far as the lettings sector is concerned, Leaf added: “Now that the Renters’ Rights Act is almost upon us, many landlords are trying to sell when tenancies end or come up for renewal. This has resulted in lack of choice for tenants, thus keeping rents at a higher level than might have been expected due to continuing cost-of-living concerns. However, turmoil in the Middle East may make some tenants think twice before committing themselves until the picture is clearer.”
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