The latest Royal Institution of Chartered Surveyors (RICS) survey reveals a cooling housing market alongside rising tenant demand and increasing rents. While buyer enquiries and agreed sales have declined sharply, landlord instructions remain subdued, signalling a cautious outlook for the property sector amid broader economic and geopolitical pressures.

Tenant Demand Rises Despite Market Slowdown

According to the RICS member survey for March, tenant demand increased modestly to a net balance of 10%, even as the housing market lost momentum. However, landlord instructions remained at a low net balance of -25%, indicating that fewer properties are being offered to let. Members of RICS also anticipate that rents will continue to rise in the short term, reflecting ongoing pressure on the rental market.

Buyer Enquiries and Sales Activity Decline

The survey highlights a significant drop in new home buyer enquiries, falling to a net balance of -39% in March from -29% in February. This marks the weakest reading since August 2023. The decline is attributed to rising borrowing costs and geopolitical tensions in the Middle East, which have unsettled market confidence. Agreed sales also fell sharply, dropping to -34% from -13% the previous month, while short-term sales expectations plummeted to -33% compared with -4% in February.

House Prices Showing Signs of Softening

House price sentiment has weakened, with the 12-month outlook slipping to -1%, losing the modest positive position seen earlier in the year. The headline price balance for March stood at -23%, down from -14% in February and -10% in January, indicating further price softening. Expectations for the next three months deteriorated to -43%, though the 12-month outlook edged slightly positive to +2%. Regionally, London, East Anglia, the South East, and the South West recorded price readings below the national average, while Scotland and Northern Ireland maintained positive price balances.

New property instructions remained subdued at -6%, and the average number of unsold properties increased to 47, up from approximately 45 at the start of the year. This suggests a growing stock of properties on the market, which could add to downward pressure on prices if demand does not pick up.

Impact of Geopolitical Tensions on the Market

Tarrant Parsons, RICS’ head of market research and analysis, commented on the market’s recent shift: “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.”

He further noted that average fixed mortgage rates climbing back above 5% have contributed to softened buyer demand. Parsons emphasised the uncertainty ahead, stating, “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.”

Market Sentiment and Future Prospects

Tom Bill, head of UK residential research at Knight Frank, added that market sentiment could improve if the two-week ceasefire in the Middle East holds, potentially supporting transaction levels as the spring market progresses. However, he cautioned that mortgage rates are unlikely to return to February levels due to the longer-term inflationary impact of the conflict and the government’s financial vulnerabilities. This, he said, will continue to restrain house price growth.

What this means for landlords

For landlords, the current market conditions suggest a continued opportunity to benefit from rising rents amid strong tenant demand. However, subdued landlord instructions and a growing stock of unsold properties may signal increased competition among landlords in some regions. The softening house prices and cautious buyer sentiment could also affect decisions around property sales or portfolio expansion. Staying informed on mortgage rate trends and geopolitical developments will be crucial for strategic planning in the coming months.

Source: Based on reporting from Property118

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