Rotation away from the capital after strong outperformance
Price momentum remains firm at the national level
- Buyer enquiries rise more modestly while new instructions to sell increase slightly
- London activity and expectations data softens
The June 2014 RICS Residential Market Survey shows that price momentum remains strong at the national level although activity indicators are pointing to some moderation in the positive trend. While the growth in demand continues to outpace supply, the overarching picture is a rather more balanced one this month. The balance of new instructions actually turned slightly positive for the first time in six months while new buyer enquiries recorded a more modest gain than previously.
The headline RICS price balance remained broadly unchanged over the month at 53 (compared with 56 in May) with prices rising in each of the twelve areas that we monitor. The South East and Northern Ireland experienced the strongest price gains for the second consecutive month while the rate of price growth in the London market appears to be easing. The London price balance recorded
a value of 31 which, although still indicative of relatively solid growth, is the lowest reading since March 2013 and is now below the national average. Indeed, the three month price expectations net balance for London is now slightly negative, although at the twelve month time horizon the series remains in positive territory for all regions including the capital.
Anecdotal evidence suggests the tightening in mortgage underwriting standards resulting from the introduction of the Mortgage Market Review (MMR) is slowing the volume of transactions. Meanwhile, increased speculation regarding the timing and pace of interest rate rises, alongside heightened rhetoric from the Bank of England regarding the risks, is resulting in more buyer caution. This may be at least partly responsible for the flatter trend in the RICS new buyer enquiries balance which at +8 stands at its lowest level since the beginning of 2013. The London market appears to have been particularly affected by the increased air of caution with buyer demand contracting for the second consecutive month in June; this does however follow fifteen successive monthly increases.
The slower trend in demand has also been reflected in the RICS newly agreed sales balance, which is showing the most subdued pace of increase since late 2012. Sales were nevertheless reported to be increasing or broadly stable in all areas but the London market. Moreover, sales expectations remain firm across all areas at both the three and twelve month horizons, with the headline balances coming in at 34 and 29 respectively.
Significantly, the lack of supply that has been exerting upward pressure on prices across the country is beginning to show some signs of easing, with the headline new instructions balance edging into positive territory at +3, the first increase this year. A much more mixed supply picture is now emerging across the country, with London seeing new instructions grow markedly this month, while in the East Midlands and East Anglia, supply continued to contract quite substantially.
In the rental market, tenant demand continued to increase at the same rate as the previous month while the number of new landlord instructions remained broadly unchanged. Rents at the headline level (England and Wales) are expected by respondents to grow on average by around 2.2% over the next 12 months.