RICS index of U.K. housing sales has indicated a steep decline in transactions in July 2016
Britain’s vote to leave the European Union, which caused major turmoil in the global financial markets, has also weakened confidence among U.K. consumers, heightening their worries about their finances and property values. This in turn has had a catastrophic impact on U.K.’s housing demand and supply in the near term, according to the Royal Institution of Chartered Surveyors (RICS) and as reported by Bloomberg on August 11th, 2016. According to RICS, new sales listings are falling at a record pace.
The headline price balance of RICS, an indicator of other house price indexes, fell to +5 in July 2016 from +15 in June 2016, the lowest level since April 2013. London witnessed the steepest housing price declines in July 2016, although the pace eased a little from June 2016.
In July 2016, both demand and sales dropped in the U.K. housing market, with new buyer enquiries falling for a fourth straight month. Meanwhile, the RICS index of U.K. housing sales has indicated a steep decline in transactions since the global financial crisis in 2008. Housing prices continued to rise, but at the slowest pace over the last three years. About 5% more surveyors recorded an increase than a fall, compared with 15% in June 2016.
The recent drop in demand in the RICS index can also be linked to a government tax change in April 2016, leading to a spurt of activity among house-owners and prospective buyers in Q1 FY16 to avoid a higher levy on purchases of properties. Homeowners and prospective buyers also received a boost in August 2016 when the Bank of England cut its benchmark interest rate by a quarter-point to 0.25%, which added to savings for borrowers with adjustable-rate loans. The latest interest-rate cut has made borrowing money even cheaper, which should boost the confidence among prospective buyers.
According to RICS, the outlook for the housing market appears brighter with the cut in interest rates and 12-month price expectations rising to 23 in July 2016 from zero in June 2016. Separately, annual house-price growth slid to 5.5% in July 2016 from as high as 8.9% in February 2016. Despite this, transaction volumes declined by 20% as compared to Q2 FY15, according to Acadata and LSL Property Services, and as reported by Bloomberg. RICS’ balance of expected sales in the next three months recovered to -2 from a record low of -26 in the July 2016 survey.
Londoners Cut House Prices to Lure Buyers in Slowing Market
In a related development, London properties are taking longer to sell and are staying on the market for five days more in August 2016 than in May 2016, according to property website Rightmove PLC, and as reported by Bloomberg on Monday, August 15th, 2016.
To encourage potential buyers, owners of inner-London homes have cut asking prices by 3.6% from July 2016 to an average of 784,494 pounds ($1 million); districts further out from London saw values drop 1.5%. This translates into an overall growth in asking prices of 2.1% in London so far in 2016, one the slowest growth rates of any U.K. region.
The average asking price in Westminster was nearly a quarter lower than in August 2015 at 1.63 million pounds, while in Waltham Forest prices rose 14% to 475,662 pounds. Across the U.K., prices fell 1.2% in August 2016, but were still up 4.1% from a year earlier.
A separate survey also shows that annual rental-growth slowed across the U.K. in July 2016, as the stock of homes jumped by almost a quarter. In London, rents fell by 0.5% to an average 1,280 pounds a month, the first decline in almost six years. The increase in the number of rental properties is partly due to the spurt of purchases before the stamp-duty increase kicked in.