New buyer enquiries fell for a second month in a row in August, with a net balance of -14% of respondents saying they had seen even fewer house hunters, following a -9% reading in July, according to RICS UK Residential Market Survey.
Agreed sales also declined at the same time – with a net balance of -18% reporting a fall.
Looking forward, respondents were more optimistic about the market’s prospects, with sales over the next three months expected to stabilise (net balance of +4%) before returning to modest growth (+7% net balance) when looking over the next year.
On a regional level, the responses show sales expectations for the year ahead are most positive across London, Northern Ireland and the South East of England.
New listings were down again with a net balance of -37% reporting yet another fall – with eight of the last nine months seeing new listings in negative territory.
As well as this, stock levels on agent’s books have dropped from an average of 42 homes per branch at the start of 2021, to stand at 38 in August, getting close to near record lows.
As a result of demand outpacing supply, respondents continued to report strong rates of house price inflation – with a net balance of +73% saying they’d seen prices increase since the previous month’s survey.
Looking to the year ahead, a net balance of +66% said they do not expect prices to continue rising at a national level, the same reading reported in July.
Tenant demand for homes to rent also accelerated in August, with a net balance of +66% reporting a pick-up in enquires (up from the +58% in the previous month).
However, a continuing decline in landlord instructions fuelled expectations among survey respondents (net balance of +64%) that rents will go up over the next three months given this imbalance between supply and demand.
Tarrant Parsons, economist at RICS, said: “The latest survey evidence inevitably points to market activity taking a breather following the flurry of sales seen ahead of the tapered stamp duty holiday withdrawal.
“That said, while momentum has eased relative to an exceptionally strong stretch earlier in the year, there are still many factors likely to drive a solid market going forward.
“Nevertheless, given the real shortfall in new listings becoming available of late, there remains stong competition amongst buyers and this is maintaining a significant degree of upward pressure on house prices.
“What’s more, prices are expected to continue to climb higher over the year to come, albeit the pace of increase is likely to subside somewhat in the months ahead.”
Bradley Tully, senior public affairs officer at RICS, added: “RICS was supportive of the stamp duty holiday as a response to unique market circumstances last year during the height of the pandemic, though the scope of the holiday was arguably broader than we had anticipated and it should have been allowed to expire as originally intended.
“Over the long-term, RICS believes that an overhaul of stamp duty land tax should ultimately be delivered. Indeed, earlier this year the House of Commons Treasury Select Committee recommended that reforming stamp duty should be a priority for the government in their report, ‘Tax After Coronavirus’.
“We would urge the government to undertake a full-scale review of the current stamp duty land tax system to assess future ideal outcomes in terms of factors such as revenue generation and housing market fluidity.
“Housing affordability for first-time buyers and key workers should remain a crucial factor when considering access to the market too”.
Tomer Aboody, director of MT Finance, said: “With a reduced supply of housing stock available for sale, prices are expected to continue rising but at a slower pace.
“This isn’t surprising as the unprecedented percentage growth over the past 12 months isn’t sustainable, nor is it good for the overall health of the market.
“As long as borrowing remains cheap, growth will remain strong, with buyers taking advantage of lower mortgage rates and increased affordability.
“The stamp duty holiday incentive has proven to be an overwhelmingly successful trigger in getting the housing market moving. It has increased productivity, providing a certain indication as to where and how the government can encourage future activity by reforming stamp duty levels.
“One possible option is to reduce or remove completely the stamp duty paid by downsizers to encourage the ‘older’ generation to sell their bigger homes while not facing heavy taxation on moving.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “On the ground, we’re finding demand has reduced partly because the tapering of the stamp duty concession prompted the bringing forward of buying decisions and also so many of our customers have been on holiday.
“As a result, prices as well as transaction numbers have softened but not corrected. In the past few weeks, the return to work and school has contributed significantly to renewed market activity.
“Encouragingly, we have also noticed an increase in valuation appraisals which should help to redress the sharp imbalance between supply and demand as well as further help to keep prices in check.”