14 August 2007Confidence in Britain’s housing market is drying up as would-be purchasers gloomily await the worst from the Bank of England, a leading survey of the sector finds today.
A range of indicators tracked by the Royal Institution of Chartered Surveyors (RICS) deteriorated sharply in July, with surveyor confidence in sales numbers turning negative for the first time since March 2003.
Although the survey showed that prices rose more quickly than in the previous month, inquiries by new buyers fell at their fastest rate since August 2004. The figures suggested that before acting, buyers are waiting to see whether the Bank of England raises interest rates to 6 per cent this autumn, as widely expected.
More surveyors expected a fall in sales over the coming three months than expected a rise. Surveyor confidence in prices was also negative, at the lowest level since June 2005. “Confidence is negative in all regions apart from London,” the survey reported.
The number of completed property sales for the quarter to July fell to 23.5 per surveyor, compared with 24.4 the month before.
However, some 12.6 per cent more surveyors reported a rise in prices than a fall in July, up from 10.6 per cent in June. But that balance remained well below the survey’s long-run average of 21.6 per cent.
London outperformed the rest of England with strong price rises. They also rose rapidly in Northern Ireland, but other regions suffered. House price growth halved in Scotland, the survey showed, and was negative in most English regions and Wales.
Jeremy Leaf, a spokesman for RICS, said: “The combination of softening demand and supply is causing market conditions to weaken further. Buyer activity has pulled back a little over fears that we may have seen the top of the market.”
Despite the bleaker outlook recorded in most surveys, the official measure of house price inflation remained strong in June. Figures from the Department for Communities and Local Government showed that prices were up by 12.1 per cent in the year to June, stronger than expected, and rising at a faster pace than the 10.8 per cent inflation seen the previous month. That put house price inflation at its strongest pace since March 2005.
The official figures are considered more precise but also more backward-looking than other, survey-based, measures of the property market. They are also not adjusted for seasonal variations.
Simon Rubinsohn, the RICS chief economist, said: “Although house price inflation accelerated more than expected in June, recent interest rate rises will gradually sap momentum from the residential property market.
“London house prices continued their particularly strong run, but the latest round of turmoil in financial markets does raise a question mark over whether this stellar performance from the capital will continue.
“Employment is key for the housing market going forward. Despite the pain of higher borrowing costs for an increasing number of homeowners, labour demands will remain generally firm, helping to support a soft landing for residential property.”
Howard Archer, of Global Insight, said: “The overall impression . . . is that the housing market has peaked and is gradually and erratically coming off the boil . . . [because of] higher interest rates, modest real disposable income growth and elevated house prices.”
Kelvin Davidson, property economist for Capital Economics, said: “We expect the repossession rate to rise again this year, in response to, amongst other things, rising capacity pressures and high money supply growth. This will . . . push down housing market activity levels. We expect house price growth to be markedly weaker by the end of the year.”
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