A surge in rents and a slowdown in mortgage lending could spell turbulence ahead for a housing market on the turn.
Two surveys out today highlight a shift in the balance between supply and demand that could send recent house price rises into reverse - and that’s before any impact of tax increases, spending cuts and trouble in the financial markets.
The quarterly lettings survey from the Royal Institution of Chartered Surveyors (RICS) today showed a surge in rents in May thanks to a lack of supply. The net balance of surveyors reporting rising rather than falling rents rose from 0% in April to 30% last May. This time last year the balance was -58%.
A continuing fall in the supply of flats and houses for rent was a key factor in the shift, with 12% more surveyors reporting a fall rather than a rise in new instructions. The RICS said the upturn in the housing market had tempted many accidental landlords to sell up and led to an increase in instructions to sell on agents’ books.
The new government’s abolition of home information packs could also encourage more owners to sell.
Meanwhile the latest survey from the British Bankers Association (BBA) showed that little evidence of the traditional Spring bounce in lending. Loans for house purchase in April were up slightly on March but well down on the levels seen at the end of last year let alone pre-credit crunch levels.
That lack of mortgage finance will put a brake on demand and rising prices have already wiped out the value of the stamp duty concession offered to first-time buyers.
All of which suggests that house price inflation will continue to slow down. Major mortgage lenders like the Halifax and Nationwide expect house prices to be flat this year.
However, as the tax rises and spending cuts to come lead to reductions in real incomes and rising job losses, prices that are still significantly over-valued against incomes will come under increasing pressure.
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