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Buyers and tenants squeezed in tight housing market

Construction, housebuilding
Demand for new homes in Scotland is falling (pic: Terry Murden)

Fewer buyers are entering the Scottish housing market while landlords are withdrawing properties for tenants following the government’s rents freeze.

The latest RICS UK Residential Market Survey reveals a fall in new buyers in September (-24%), the fifth consecutive month of declining interest and sales.

A net balance of -5% of Scottish respondents expect sales to fall in the next three months.

Prices have been propped up by a lack of supply, but the outlook is less positive over the next quarter.

In the lettings market, tenant demand continues to rise but at a slower rate, alongside a fall in landlord instructions for the second successive month.

As a result, near-term expectations point to further strong growth in rental prices over the coming three months.

This follows the Scottish government’s new legislation capping rents for at least six months. Landlords have been pulling out of the sector, while investors have put build-to-rent projects on hold.

The RICS findings reflect a wider downturn in the market. Close to £1 billion was knocked off the value of the biggest housebuilders yesterday as rising interest rates and a fall in the number of mortgage products squeeze buyers.

Barratt Developments, Britain’s biggest housebuilder, warned that its sales across the UK have fallen 44% compared with this time last year and are 20% down on sales as recently as July and August.

Chief executive David Thomas, said the slowdown in sales reflected the “wider economic uncertainty” as prospective buyers face surging borrowing costs, a cost of living crisis and fears of an imminent decline in house prices. Barratt shares fell 17.5p (5.1%), to 325.5p while Persimmon fell 75p (6.2%) to 1139p. The nine biggest builders lost £930m in value, according to data from Refinitiv.

Commenting on the RICS survey, Ian Morton of Bradburne & Co in St Andrews, said: “The Scottish Government introduced restrictions on rent increases and no evictions until March 2023. This may reduce the confidence of buy-to-let investors adding to their portfolios and in return not helping the severe shortage of rental stock.”

Euan Ryan, Senior Public Affairs Officer, RICS said: “RICS welcomes the Scottish Government’s focus on ensuring tenants have access to secure, high quality, safe and affordable tenancies amid significant economic challenges. We are also strongly supportive of efforts to improve the maintenance and energy efficiency of properties.

“However, we are concerned over the low supply of rental properties, which can lead to increased costs and reduced choice. Care must be taken to ensure that the Government’s current initiatives do not exacerbate this issue and prevent necessary investment in the sector. The Government must also bolster its own role in the delivery of affordable homes for rent to ensure adequate supply.”

Commenting on the UK sales market, Simon Rubinsohn, chief economist, commented: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market.

“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.

“How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.

“For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows.

“However, as lenders have been a lot more cautious through this cycle with high loan to value mortgage accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market.”

See also: Haughey halts £1bn homes plan after rent freeze

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