UK housing market could be about to hit the brakes following post-pandemic boom

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The current ‘mini-boom’ in the UK’s housing market could be starting to run out of steam, according to new data from the Royal Institution of Chartered Surveyors (RICS).

In its UK residential market survey for September, the RICS said while demand and sales in the market “remain firmly positive”, the outlook for sales expectations over the next 12 months “still portray a more subdued outlook further ahead”.

The data highlighted that 12 month sales expectations were now at a net balance of -34%, down from -17% in August, with the report citing “potential job losses across the economy once the furlough scheme is withdrawn as a significant risk for market activity further ahead”.

“Estate agents aren’t known for their gloomy appraisals, but even they are getting uneasy about the future of the housing market. Overall there are plenty of positives in the latest RICS survey. It shows a boom in activity and sales across the whole of the UK. There’s also a sense optimism regarding the next three months. However, there’s a growing sense of unease in the agents’ comments”, said Sarah Coles, a personal finance analyst at Hargreaves Lansdown.

READ: Don’t be suckered in by house price rises and Barratt’s recent trading, caution analysts

It’s not just that they’re worried about the overall economic picture, and the impact of job losses in the months to come, they’re concerned about sticking points in the current market too. Towards the end of September, many of the agents reported that demand had slowed. Activity in recent months has meant sales are backing up in the system too. Agents complain about delays with searches, surveyors and lenders – which mean sales are taking months to complete and risk falling through”, she added.

Another issue that could help squeeze the brakes on the market is tightening mortgage criteria among banks, who are becoming less willing to lend as the effects of the pandemic continue to take their toll on the wider economy.

“First time buyers with small deposits are struggling to get mortgages. Meanwhile, second steppers are struggling to shift their city centre flats with no outdoor space. When one section of the market freezes, the chill tends to spread. With a drop in first and second-time-buyers, there are fewer people able to move into family homes in the suburbs, and less opportunity for suburban dwellers to escape to the country. The government has offered to step in and support the mortgage market for first-time-buyers, but it remains to be seen whether it will be enough to stop the market grinding to a halt”, Coles said.

A potential slowdown in the housing market could burst the bubble for the UK’s housebuilders, notably Barratt Developments PLC (LON:BDEV), Persimmon PLC (LON:PSN) and Taylor Wimpey PLC (LON:TW.), all of which have been hoping to cash in on the ongoing market boom as pent-up demand from lockdown is released.

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