Rising mortgage rates force housing market to slow

Home sales continued to slow last month, while the rental market accelerated as prospective buyers postponed purchases amid rising mortgage rates.

Inquiries among new buyers fell for the sixth consecutive month in October and the average time it takes to complete a sale increased as buyers grew wary of a looming recession, according to the latest survey by the Royal Institution of Chartered Surveyors.

The net balance of new buyer inquiries fell sharply to -55 percent in October, down from -36 percent the previous month, suggesting that prospective buyers are becoming more cautious about purchases as conditions deteriorate. financial conditions.

Home price growth, which reached record levels during the pandemic, has stalled as people’s budgets shrink. The net balance of house prices stagnated in October after 28 consecutive months of growth. The index score fell to -2 percent, down from 30 percent in September.

The average time needed to complete a sale from the date of the initial listing increased to 18 weeks, up from 16 weeks in October last year.

However, rental prices continued to rise, with a net balance of 42 percent of respondents reporting an increase in the past month. The number of new owners fell, with a net balance of -14 percent in the same period.

Demand was outstripping supply in the rental market, raising forecasts for rental prices, said Simon Rubinsohn, chief economist at the institution, adding that it was “hard to see this changing anytime soon in the current environment.”

The price of rental properties is expected to rise as the stock of homes available for rent fails to keep up with demand. Chartered surveyors surveyed by the trade body expect rents to have increased by an average of 4 percent across the country within a year.

Home buyers are facing a rise in the cost of borrowing after the Bank of England last week raised interest rates for the eighth time in a year, taking the base rate to its highest level since the financial crisis. worldwide at 3 percent.

Central bank officials have warned that more rate hikes are on the way amid fears that inflation, initially caused by a rise in global energy prices, has become “embedded” in the economy through higher wage demands. and the companies’ plans to continue raising energy prices. goods and services. However, interest rates are not expected to rise to the 5.25 percent quoted on money markets before the Bank’s decision last week, rate setters said.

Since just before the pandemic, home prices have risen more than 25 percent, according to estimates released Monday by Halifax, the mortgage lender. Even with the recent drop, prices remain near an all-time high.

Average prices fell 0.4 percent to a five-month low of £292,598 after falling 0.1 percent in September, according to the index, the steepest drop in prices since February last year. The annual rate of growth fell to 8.3 percent from 9.8 percent the previous month.

Rubinsohn said: “The latest RICS survey feedback provides further evidence of buyers’ caution in the face of sharply rising mortgage costs. As a result, the volume of activity is likely to decline in the coming months and it is now much more important to set realistic prices to complete a sale. The establishment of financial markets could provide some relief, although it may be premature to assume that this will be reflected in a reduction in interest rates in the short term.

Tom Bill of the Knight Frank estate agency chain said house prices had peaked. “We expect prices to return to the level they were in the summer of 2021 as rates normalize after 13 years,” he said.

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