Rising Mortgage Costs Dent Buyer Demand Amid Housing Market Mood Shift
Rising mortgage costs have significantly dented demand from buyers in the UK property market, dampening longer-term expectations for house prices, according to the latest survey from the Royal Institution of Chartered Surveyors (Rics). The housing market is losing momentum in March as rising borrowing costs and wider geopolitical uncertainty weigh heavily on buyer confidence and sales activity.
Sharp Decline in Buyer Inquiries and Agreed Sales
A net balance of 39% of property professionals reported seeing new buyer inquiries falling rather than rising in March, deteriorating from a balance of 29% who observed this trend in February. This represents the weakest reading since August 2023, as the housing market optimism seen earlier in the year has faded considerably.
Agreed sales also deteriorated markedly, with a net balance of 34% of professionals reporting falls, down from a balance of 13% who noted declines the previous month. The Rics report indicates a market increasingly pressured by inflationary concerns and higher mortgage costs, with a net balance of 33% of professionals expecting sales activity to weaken further over the coming months.
Price Expectations Weaken Across the Board
Price expectations have weakened significantly across different timeframes. A balance of 23% of professionals saw house prices falling rather than rising in March. Looking ahead, price expectations for the next three months also deteriorated, with a net balance of 43% of professionals anticipating falls.
When examining the 12-month outlook, a balance of just 1% of professionals expect sales to weaken, indicating a broadly flat market. Looking a full year ahead, a balance of only 2% of professionals expect price increases, pointing to minimal overall price growth over the coming year.
Regional Variations and Supply Challenges
The survey revealed significant regional variations across the UK. London, East Anglia, the South East and the South West all posted weaker price readings than the national average, while Scotland and Northern Ireland continued to report rising prices despite the broader market challenges.
On the supply side, new instructions to sell remained subdued, and the amount of unsold stock on estate agents' books rose to an average of 47 properties, up from approximately 45 at the beginning of the year. In the lettings market, a persistent mismatch between demand and supply continued, with demand for rental properties from tenants rising while landlord instructions continued to decrease.
Expert Analysis and Market Outlook
Tarrant Parsons, Rics head of market research and analysis, commented: "The mood across the UK housing market has shifted markedly over the past couple of months. What had been a cautiously improving picture for activity has been knocked off course by the wider macro fallout from the Middle East conflict, as the renewed deterioration in the mortgage rate outlook has proved particularly challenging."
Parsons added: "Indeed, with average fixed rates climbing back above 5% according to some sources, it is unsurprising that buyer demand has softened. The path ahead hinges on whether or not recent surges in oil and energy costs begin to reverse in what remains a highly uncertain geopolitical environment."
Financial information website Moneyfacts reported on Wednesday that mortgage rates are likely to remain higher for "some time yet" despite some signs of the upward pressure easing. Global stock markets have been recovering after the US and Iran agreed a two-week ceasefire, and Moneyfacts suggested that calming markets should have a stabilising impact on the mortgage market.
Adam French, head of consumer finance at Moneyfacts, stated: "The longer the ceasefire holds and markets calm, the more the mortgage market will stabilise, and rates could even begin to edge lower. But for now, it's more likely to slow or pause increases rather than trigger any sharp falls."
Jinesh Vohra, chief executive of mortgage app Sprive, offered practical advice for homeowners: "Strategies like regular overpayments or reducing your balance earlier can have an outsized impact – potentially saving homeowners thousands over the term of their mortgage. In today's environment, it's not just about getting on the ladder, but managing the cost of staying on it."
The combination of rising mortgage costs, geopolitical uncertainty, and inflationary pressures has created a challenging environment for the UK housing market, with professionals anticipating continued weakness in both demand and price growth in the months ahead.
