UK surveyors report weakest house price growth in nearly a year, RICS survey shows

A Royal Institution of Chartered Surveyors' survey indicates a further cooling of the UK housing market in May, with the house price balance falling to -8, the lowest since July 2024, due to fading buyer demand after increased property transaction taxes in April and concerns over global trade tensions. New buyer enquiries also remain negative, and while a gradual recovery in sales is expected over the next year, the pace hinges on potential interest rate cuts by the Bank of England, which is expected to hold rates steady next week amid market expectations of two quarter-point cuts by the end of 2025.

Analysis

The UK housing market demonstrated further deceleration in May, with the Royal Institution of Chartered Surveyors' (RICS) house price balance declining to -8 from -3 in April, marking its weakest level since July 2024 and falling short of economists' expectations of -4. This cooling is attributed to receding buyer demand following an increase in property transaction taxes in April and heightened concerns regarding global trade tensions, as noted by RICS senior economist Tarrant Parsons. Supporting this trend, Bank of England data indicated mortgage approvals dropped to a more than one-year low in April, while the RICS measure of agreed home sales also moved further into negative territory. New buyer enquiries, though still negative with a net balance of -26 in May, showed a slight improvement from -32 in April and March. While surveyors anticipate a gradual recovery in sales activity over the next year, the pace and extent of this improvement are seen as contingent on potential interest rate cuts by the Bank of England. The central bank is expected to maintain current interest rates in its upcoming meeting, despite financial markets pricing in two quarter-point rate cuts by the end of 2025, a sentiment echoed by a recent Reuters poll of economists. The overall sentiment derived from the report is moderately negative, reflecting a cautious outlook for the sector.

Key Decisions for Investors

• Investors should closely monitor upcoming Bank of England monetary policy decisions and forward guidance, as interest rate adjustments are identified as a key catalyst for the pace of recovery in the UK housing market.
• Given the reported decline in the house price balance to -8, subdued buyer enquiries, and lower mortgage approvals, a cautious stance may be warranted for direct investments in the UK residential property sector or related equities until clearer signs of demand stabilization emerge.
• Consider the potential continued impact of global trade uncertainties and existing fiscal measures, such as property transaction taxes, on UK consumer sentiment and their consequent effects on housing transaction volumes and price stability.