RICS: Buyer demand and sales surge - but how could the Budget affect the housing market?

Buyer numbers rose at their fastest rate for three years last month, with sales agreed and the number of properties being listed also increasing, according to the Royal Institute of Chartered Surveyors (RICS).

The August survey by RICS shows a “positive shift in the UK housing market”, spurred on by the recent drop in mortgage rates.

It found that estate agents and surveyors expect further growth in the property market as we head into the final quarter of the year.

The survey also revealed that house prices are starting to increase after almost two years of decline, with the majority of respondents predicting a steady rise over the next three months.

Last week, Halifax said that house prices rose 4.3% in August compared to the same period a year ago, marking the strongest rate of annual growth since November 2022.

“The latest RICS survey captures an improvement in sentiment over the past month in the wake of the modest decline in mortgage rates with buyer interest improving, albeit from a relatively low base, and stock levels edging up,” says Simon Rubinsohn, RICS chief economist.

However, he adds that there is uncertainty around the contents of the forthcoming Autumn Budget and further interest rate cuts, which is “keeping the mood in check”.

The Labour government has repeatedly warned of “tough decisions” to come in the Budget, with speculation that we could see a string of tax rises on 30 October when chancellor Rachel Reeves unveils her first Budget.

Housing sentiment improves

The RICS survey shows a rise in the number of people looking to buy homes, with a net balance of +15 of respondents noticing an improvement in this indicator.

In July, the figure was +4, while in June it was negative (-6).

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments: “This burst of renewed enthusiasm is likely to owe more to the cheering impact of the Bank of England’s rate cut last month. It has helped convince buyers that life is likely to get easier rather than harder over the coming months, so they can afford to take the plunge.”

On the supply side, the number of new property listings has seen a modest increase (+7, up from +3 in July), according to RICS. It says there are suggestions that this will continue to increase, improving the choice for home buyers.

Coles notes that August is usually a quiet month, so agents will be hopeful that “when we’re all back to business as usual this autumn, there will be another surge in demand”.

“Ongoing shortage of rental properties expected to push rents higher”

However, while it’s a relative rosy picture for property sales and those buying a home, it’s a different scenario for renters.

RICS observes that the struggle between healthy tenant demand and a lack of available rental properties persists, which will likely push rents higher.

Tenant demand continues to remain positive, although the pace of growth has slowed compared to previous months. The net balance of +11 in August is lower than the +26 recorded in July, but still reflects steady interest from renters.

On the other side, the supply of rental properties remains sluggish, with new landlord instructions falling again. The net balance for new rental listings dropped to -21, down from -9 last month.

Rubinsohn says affordability remains an issue in the lettings market, adding: “With landlords looking to scale back their portfolios [this] will inevitably increase the imbalance that already exists in the market”.

Figures from Rightmove show that a record number of previously-rented homes are being listed for sale, as “financial strain is forcing landlords out of the buy-to-let sector”.

The Renters’ Rights Bill - which will put an end to no-fault evictions - is also likely to drive more landlords out of the market, which in turn could push rents up.

How could the Budget affect the housing market?

The Budget is likely to announce some tax increases. With the government pledging that it won’t touch income tax, VAT or National Insurance, it means taxes like capital gains tax, inheritance tax and/or stamp duty could be hiked.

These could all impact the housing market, as it may change behaviour around if and when properties are bought and sold.

Tomer Aboody, director of specialist lender MT Finance, says: “If the Budget does prove to be as bad as many fear, this could result in a subdued market reaction. Hopefully, an interest rate reduction will also be on the cards, which would help boost activity and sentiment.”

He adds: “It looks as though buy-to-let investors will once again be hit, which will also be a negative for tenants – the more demand outweighs supply, the more rents will increase.”

Coles points out that some of the RICS survey respondents are reporting a surge in landlords selling up because they’re worried about potential changes to capital gains tax in the forthcoming Budget, “which could simultaneously push ruinous rents up even higher and keep a lid on property prices in the sales market”.

She adds: “They’re also worried about new legislation to strengthen tenant rights. They say this could mean more landlords deciding to sell up, to protect themselves from being stuck with tenants from hell, so that rental properties are even thinner on the ground.”

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