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North East Connected

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RICS UK Residential Market Survey, January 2017

  • Sales & Instructions in the North East decrease during January
  • Prices and rents to continue rising across the region due to ongoing shortage of stock
  • Buy-to-let investment anticipated to decline given current policy landscape

A shortage of supply in both the North East’s lettings and sales segments continues to present a huge challenge for the housing market, according to the January 2017 RICS (Royal Institution of Chartered Surveyors) UK Residential Market Survey.

In January, new landlord instructions in the North East’s lettings market increased, with 23% more respondents reporting newly available homes to rent (up from 8% during December).  However, respondents indicated that they expect landlords to decrease the size of their portfolios over the next three years.

Changes to Stamp Duty in April alongside scheduled cuts to mortgage interest tax relief, were both seen as important factors diminishing the attractiveness of buy-to-let as an investment as 28% more respondents felt that landlords were likely to decrease (rather than increase) the size of their portfolio over the next twelve months. Over the next three years, 26% more contributors expected landlords to scale-back their portfolios. It is, however, worth noting that the sentiment survey was obtained prior to the latest housing announcements.

During January, tenant demand for rental properties in the North East continued to increase with 22% more respondents reporting a rise in demand (up from 15% the previous month) but the continued imbalance between supply and demand is expected to squeeze rents higher. The exceptions to this pattern across the UK are to be found in London and Scotland where tenant demand is slipping back a little.

Over the next five years, rental projections point to a cumulative increase of just over 25%, outpacing house price inflation over this time period (respondents anticipate prices will rise a little under 20% on the same basis).

Moving to house purchases – new buyer enquiries in the North East decreased during the month of January, along with sales and new instructions (homes coming on to the market) which have remained flat for the past few months, leaving  average stock levels on agent’s books close to historic lows.

However, sales are predicted to improve in the near term with 29% more respondents in the North East expecting a rise rather than fall over the next three months. What’s more, the balance of respondents predicting that sales will increase over the year to come reached a one year high (37%).

Meanwhile, only 13% more respondents in the North East saw a rise in prices, rather than a fall in January. Looking across the UK, the past price balance deteriorated slightly in Central London for the second straight report and has now been in negative territory for eleven consecutive months. Most other parts of the UK continue to see prices rise, with the North West returning the highest net balance for a third survey running.

Paul McSkimmings of Edward Watson Associates in Newcastle upon Tyne said: “After a slow start to the month, we’re seeing enquiries and instructions increase steadily. Cautious optimism remains for the coming months.”

Prices are expected to continue to rise over both the next three and twelve months across the UK in all regions except Central London.

Simon Rubinsohn, RICS Chief Economist, comments: “The scale of the challenge the government faces as it announces its new approach to housing is clearly demonstrated in the results from our latest survey. Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium term view of RICS professionals working up and down the country is that both house prices and rents will over the medium term continue to grow at a faster pace than wages, putting even greater pressure on affordability. Whether the measures announced can ease this this trend remains to be seen.”

Jeremy Blackburn, RICS Head of Policy, commented: Ministers must be credited with changing the course of the ship of state on housing. They’ve listened to us on expanding supply, not just pumping demand, and on giving the institutionalised Private Rented Sector (PRS) much greater priority alongside owner occupation. Our survey demonstrates how vital greater supply is in this sector; we really need to turbo boost Build to Rent. The consultation on how to do this must be used as a defining moment.

“At the same time we need to stop punitive measures against our bedrock small landlords. The detail on the ban on letting agent fees is yet to come, and along with any overt forcing of longer tenancies, could dampen investment in buy-to-let overall. The government must be careful about signalling both stop and go at the same time.”