‘Storm clouds gather’ over housing market as mortgage rates rise

“Storm clouds are visible” in the housing market, according to surveyors, with surging mortgage rates expected to push house prices downwards in the year ahead.

The market lost momentum in September, with new buyer inquiries falling for the fifth month in a row, the Royal Institution of Chartered Surveyors (Rics) said.

A limited supply of properties for sale is still supporting modest price rises, but this looks set to end as the pace of growth slows markedly, the latest report from Rics indicated.

The outlook for interest rates and uncertainty over the wider economy are taking their toll, with the impact of rising mortgage rates expected to outweigh the boost that buyers could get from stamp duty cuts in the recent mini-budget.

The average two-year fixed mortgage rate on the market on Wednesday this week was 6.46%, according to Moneyfacts.co.uk, while the average five-year fixed deal was 6.32%. Both of these average rates are the highest since 2008.

New instructions to sell have continued to fall, Rics said, with stock levels remaining at historic lows.

Estate agents are holding just 34 homes on average on their books, and the pipeline appears to have deteriorated further, with the number of new market appraisals falling overall.

Sales volumes have been falling for five months in a row and are at their worst levels since May 2020, in the early period of the coronavirus pandemic.

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Property professionals’ sales expectations over the next three months and 12 months remain negative.

A net balance of 18% of property professionals expect house prices to fall rather than increase over the next 12 months.

They cited expected further substantial rises in mortgage rates as a factor, Rics said.

In the lettings market, tenant demand has picked up alongside a fall in landlord instructions, Rics added.

As a result, near-term expectations point to further strong growth in rental prices over the coming three months.

Rics chief economist Simon Rubinsohn said: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost-of-living crisis, in shifting the dial in the housing market."

"Looking further out, the picture portrayed by the Rics survey has clearly shifted in a negative direction.

“For now, mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows."