The December 2024 RICS UK Residential Property Survey has just been published, and paints an optimistic picture of the housing market as the year concludes, albeit with some challenges on the horizon. Here’s a detailed breakdown:

Positive Trends in the Housing Market

  1. House Sales and Price Growth:
    • Buyer Enquiries: A net 5% increase in December 2024 shows sustained interest, though slightly below November’s +11%.
    • Sales Volumes: Net balance of +7% indicates steady growth, improving on November’s modest 1% growth.
    • New Listings: Net balance of +14% for new instructions reflects the sixth consecutive month of growth, potentially driven by the anticipated stamp duty changes in March 2025.
    • Regional Highlights: Northern Ireland and Scotland lead in price growth, underlining regional disparities.
  2. Rental Market Stability:
    • Tenant demand is stabilising, but a tight supply of rental properties continues to push rents higher.
    • Future Expectations: Net balance of +37% of respondents predicts further rent increases, offering strong yield potential for landlords.

Challenges Ahead

  1. Borrowing Costs and Rising Yields:
    • Concerns over increasing gilt yields could lead to higher mortgage rates, potentially dampening buyer sentiment and impacting affordability.
    • Developers may face hesitancy to ramp up construction if borrowing costs rise, threatening the government’s target of 1.5 million homes for this parliament.
  2. Rental Market Pressure:
    • Despite stabilised demand, the ongoing landlord exodus is reducing rental stock, exacerbating affordability issues for tenants.
    • Tight supply presents opportunities for landlords but raises broader concerns about access to housing.

Expert Commentary

  • Simon Rubinsohn, Chief Economist at RICS, expressed cautious optimism: “The latest results from the RICS Residential Market Survey point to a further improvement in sentiment in the housing market despite concerns about the potential impact of rising bond yields on borrowing costs. Buyer enquiries rose once again, albeit at a slower pace than in November, and the headline price indicator also moved higher.”Rubinsohn also noted the importance of stability for developers and the broader market. “The resilience of the uplift in market mood could be tested if mortgage rates begin to climb in a material way over the coming months. That, critically, would also be a concern for developers who will want to see a solid market as a backdrop for ramping up housebuilding to help meet the government’s ambitious 1.5 million homes target for this parliament.”

Implications for Stakeholders

  1. Landlords:
    • Rising rents provide an opportunity for higher returns.
    • Portfolio retention or expansion could be advantageous, especially in regions with robust price growth.
  2. Buyers:
    • Market resilience means house prices are likely to remain high, but potential mortgage rate hikes may impact affordability.
  3. Policy and Developers:
    • Policymakers must balance market growth with affordability concerns, particularly in the rental sector.
    • Developers need confidence in stable demand to ramp up housebuilding and meet government targets.

Conclusion

The UK housing market is ending 2024 on a strong note, with price growth and sales activity providing a favourable environment for investors and landlords. However, rising borrowing costs and ongoing rental supply challenges will require careful navigation in 2025.