Property buyer demand cooled in January, according to an industry survey by the Royal Institution of Chartered Surveyors (RICS), which said this could have been linked to the sell-off in bond markets and rising yields.
The January RICS UK residential property survey suggested a broadly flat picture for house demand and sales.
The professional body’s survey showed that its indicator of new buyer enquiries had a net balance of zero in January, meaning interest in home buying neither increased nor decreased.
Meanwhile, the survey indicator on agreed sales rose by a net balance of 3%, though RICS said this was “very marginal in term of growth”.
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Tarrant Parsons, head of market analytics at RICS, said: “The latest survey feedback indicates that growth in buyer demand lost a bit of momentum through the early part of the year, with this flatter picture likely linked to the turbulence seen across money markets in the first half of January.”
Concerns about stubborn inflation and sluggish economic growth – known as “stagflation” – in the UK, as well as rising levels of sovereign debt sparked a sell-off in government bonds. This has prompted a surge in the yields on these bonds, which are effectively the interest rates on this debt paid out as a return to investors, meaning the UK government’s cost of borrowing also rose.
Lenders typically look to gilt yields as a basis for setting their long-term lending rates, including fixed-rate mortgages. This means that when gilt yields rise, fixed mortgage rates also tend do so.
Yields have since eased back, though they do remain elevated compared to where they stood in the middle of last year.
The RICS survey showed that while the demand had cooled in January, the sales market was expected to heat up in the months ahead. The survey indicators for the three-month outlook for sales was up 10% and had a net balance of +30% for 12-months from now.
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As for house prices, a net balance of +22% responses indicated rises over the month. Respondents firmly believed that house prices will continue to climb across the country in the coming year, with this survey indicator giving a net balance of +55%.
Parsons said that the slightly positive near-term outlook for sales activity “should be further supported by the unwinding of some of the pressures around mortgage interest rates over the past couple of weeks.”
Sarah Coles, head of personal finance at Hargreaves Lansdown (HL.L) and Yahoo Finance UK personal finance columnist, said: “The bond market drama that hit in early January didn’t dramatically shift mortgage prices, but potential buyers fretted about what might happen next, and stayed home.”
