The UK housing market is set to slow down over the next three months following a short term rush on buy to let properties, says the latest report from the Royal Institution of Chartered Surveyors.
The monthly survey report from RICS also shows that house price inflation peaked last December ahead of an anticipated rush to beat buy to let tax rises which come into force on 01 April.
Once the 3% surcharge on additional homes, which include buy to let and second homes, is in place, RICS predicts that there will be more modest growth in property sales.
While 74% of survey respondents expected there to be a rush on buy to let purchases ahead of Stamp Duty increases only 17% (net balance) expected to see an increase in sales over the coming three months.
In addition, while house price inflation expectations peaked following the Chancellor’s Autumn Statement, with prices driven by speculation regarding an increase in investor demand, RICS says that this trend is set to soften from March as investor interest dampens. Only 21% of respondents expect prices to increase over the coming months.
The survey showed that house prices continued to creep up throughout February. Across the UK, East Anglia continues to show the sharpest price increases, with 91% of respondents reporting that prices had risen over the past month.
London and the North East by way of contrast saw very modest gains while the South West has seen the highest rise in sales across the UK for the last three months and 49% of respondents experienced a rise in sales rather than a fall and further increases are expected over the year ahead.
New instructions to sell also increased more sharply in the South West than anywhere else in the UK as 34% of surveyors saw an increase in new listings rather than a decrease.
New buyer enquiries in the South West rose for the twelfth month in succession with 49% more respondents seeing an increase in demand rather than a fall, the highest in the UK.
However, uncertainty weighs on London’s housing market. Price expectations have turned negative in prime central parts of the capital and after sharp periods of inflation, London house prices look set to stabilize. Overall outer London boroughs remain firmly positive and Zone one properties are showing signs of a downturn.
‘Anecdotal evidence has suggested that a combination of exogenous factors is contributing to the overall picture in prime London, with tax changes, foreign market slowdowns and uncertainty over Brexit all being mooted as potential reasons behind the changes in demand,’ said Simon Rubinsohn, RICS chief economist.
‘This is not necessarily indicative of the long term market and the depreciation of the pound could encourage overseas investors back in to the market as could the outcome of the European referendum,’ he explained.
He pointed out that the challenges facing the top end of London’s property market are clearly visible in the latest results. ‘However, it is evident that the broader London market remains firm in the face of the on-going shortage of stock and pent up demand. Although agreed sales in February were strong, the dip in new buyer enquiries suggests that it might be reasonable to assume a slower market in the spring as a result of this change,’ he said.
‘Over the past three months, we have witnessed a surge in buy to let activity. Since the Chancellor made his Autumn Statement announcement last November, investors have rushed to purchase homes before the Stamp Duty surcharge comes into effect. It is inevitable that over the coming months, April’s Stamp Duty changes will take a little of the heat out of the investor market,’ he added.
Rubinsohn also pointed out that while there remain significant doubts as to whether the Government’s plans to encourage a more robust development and construction pipeline will be sufficient to address the housing crisis, long term price indications for the housing market remain strong, with respondents still expecting them to rise by a further 25% over the next five years.