UK house-buying demand falls at fastest pace since 2020 lockdown

UK housing market demand in October fell at the fastest pace since the start of the Covid-19 pandemic and registered one of the largest drops in more than 20 years as mortgage rates surged, according to a closely watched survey.

The Royal Institution of Chartered Surveyors’ new buyer inquiries index on Thursday fell for a sixth successive month in the sales market, from minus 36 per cent in September to minus 55 per cent in October.

That is the lowest reading since the 2008 financial crisis, excluding spring 2020 when the housing market was largely shut because of pandemic-related measures.

It also marked the fifth-largest drop in the index — which tracks the share of surveyors reporting an increase in demand minus the share reporting a contraction — since records began in 1999, with buyer demand negative across all parts of the country.

Simon Rubinsohn, Rics chief economist, said the data provided “further evidence of buyer caution in the face of the sharp rise in mortgage costs”.

Mortgage rates shot up following the “mini” Budget on September 23, when former prime minister Liz Truss announced £43bn of unfunded tax cuts. The move resulted in soaring policy rate expectations for 2023.

Although markets have since calmed, they are still pricing in a rise in interest rates by the Bank of England to 4.6 per cent by next summer.

The base rate is at present 3 per cent, up from just 0.1 per cent in December last year.

Separate BoE data last month found the average new mortgage rate rose to 2.84 per cent in September, the highest since 2015. However, daily figures from the financial website Moneyfacts show rates are now even higher, albeit lower than at the height of recent market turmoil.

Rubinsohn said financial markets calming “could provide some relief, although it may be premature to assume this will be reflected in a reduction in lending rates anytime soon”.

With demand falling, the Rics house prices index dropped to minus 2 per cent in October, down from plus 30 per cent in September and the first negative reading since June 2020.

It was also much worse than the slowdown to 20 per cent forecast by economists polled by Reuters.

Tom Bill, head of UK residential research at estate agent Knight Frank, said October “was undoubtedly a bad month for the UK property market”.

“After growth of 25 per cent during the pandemic, we believe it’s a reasonable assumption that house prices have now peaked,” he added.

Data from mortgage providers Nationwide and Halifax last month showed house prices had already dipped month on month in October. Estate agent Savills has forecast that UK house prices will contract by 10 per cent next year.

That forecast is in line with the Rics index for house price expectations for the year ahead, which fell from minus 18 in September to minus 42 in October, the lowest since April 2020.

Prices are falling even as the stock of housing per surveyor has dropped to the lowest on record, according to Rics.

With more people unable to buy a property, the lettings market remained healthy; the net balance for tenant demand was a solid 46 per cent reading in October, the survey showed.

At the same time, landlord instructions fell to a net balance of minus 14 per cent, leading surveyors to expect a solid rise in rents over the near term.