Data from the Royal Institution of Chartered Surveyors (RICS) revealed a decline in the housing market last month, as hopes for a Bank of England rate cut diminished. This report was released just hours before a major housebuilder issued a profit warning.
According to the RICS monthly study, prices dropped in May as mortgage rates began to rise. This came after it became clear that the Bank of England would not take immediate action to reduce borrowing costs, despite some progress in controlling inflation. This news had a significant impact on the housing market, with fixed rates falling at the beginning of the year in anticipation of a rate cut from the Bank’s 5.25% level.
However, the recent updates from Threadneedle Street have shown that a rate cut is not imminent. This has led to markets predicting that August or September will be the most likely months for the first reduction. The continued delay in rate cut expectations has affected buyer sentiment, as many are concerned about affordability.
According to data from moneyfacts.co.uk, the average two-year fixed residential mortgage rate is currently at 5.97%, the highest it has been since December last year. RICS believes that buyers are holding off on making purchases in the hopes of lower borrowing costs in the future.
This trend was evident in the latest report from housebuilder Crest Nicholson, which cited a drop in half-year profits. The company warned that its annual earnings would decrease by at least a third. As a result, shares lost up to 12% following the announcement. The company also confirmed a significant reduction in its interim dividend, from 5.5p per share to just 1p per share. In addition to the impact of lending rates, Crest Nicholson also mentioned the uncertainty caused by the upcoming election.
Tarrant Parsons, RICS senior economist, commented on the recent state of the UK housing market, stating, “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward.”