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Pessimism among estate agents about the UK housing outlook reached its highest level in three years last month, as elevated mortgage rates weighed on household finances and demand.
The Royal Institution of Chartered Surveyors (Rics) said on Thursday that its measure of sales expectations for the year ahead fell sharply to minus 17 in October from one in September — the weakest reading since July 2023.
Its index tracking price expectations over the next 12 months also dropped to minus 17 last month, from zero in September, marking the lowest reading since October 2023.
The Rics indices measure the difference between the proportion of surveyors reporting increases and decreases in housing market activity, with negative readings indicating that more respondents are reporting falls than rises.
Tarrant Parsons, head of market research and analysis at Rics, said: “Homebuyer demand remains subdued, and respondents are bracing for a weaker year ahead for sales given the persistent macroeconomic challenges being faced.”
He added that “mortgage rates are likely to remain elevated for longer, thereby continuing to weigh on the market”.
Last week, the Bank of England increased interest rates to 4 per cent and warned that inflation would peak at 5 per cent next year.
The central bank calculated that average annual mortgage payments were projected to be about £700 higher by the end of 2029 than forecast in July, and about £1,500 higher than before the Iran war, weighing on household consumption.
Financial markets expect the Bank of England to raise interest rates by three quarter-points by the end of 2027 to quell rising inflation, maintaining pressure on borrowing costs.
BoE data showed the average rate on a five-year fixed-rate mortgage with a 75 per cent loan-to-value rose to 5.2 per cent at the end of October, the highest in three years.
The average two-year rate with the same loan-to-value rose to 5.4 per cent, also the highest since autumn 2023. Meanwhile, mortgage approvals fell to their lowest level since late 2023 in September.
The Rics survey pointed to widespread weakness across the housing market, with estate agents reporting declines in house prices, buyer enquiries, agreed sales and new instructions to sell.
“House prices are falling, mortgage rates are climbing and buyer confidence is at an all-time low,” said Howard Davis, managing director at Bristol-based Howard Independent Estate Agents. “We continue to lower prices to attract buyers.”
Last week, data by the lender Lloyds showed that the average house price fell by an annual rate of 1.2 per cent in October to £296,285, the largest drop since October 2023.
The Rics survey also warned of growing pressure on the rental market, with tenant demand rising, while agents also reported a decline in rental properties coming on to the market due to the affordability constraints of buying a home.
In the October Budget, chancellor John Healey increased tax rates on income from property and savings from next year by two percentage points, doubling a rise announced by his predecessor Rachel Reeves.
Will Ravenhill, managing director of the Leicester-based estate agent Readings, said: “Many landlords have had enough and are selling up.”