Our latest UK Residential Market Survey has seen a rise in new instructions in January, which, although modest, is very welcome. However, with buy-to-let investors rushing to get into the market ahead of the stamp duty hike, the near-term pressure on prices is intensifying despite a higher level of supply.

How the tax changes planned for the buy-to-let sector over the next few years plays out remains to be seen, but there are concerns raised in the survey that existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite. Against this backdrop, it is perhaps not surprising that our key indicators point to further rent — as well as house price — increases.

 

Summary

Demand still strong

New buyer enquiries rose for the tenth successive month in January, with the pace of growth in enquiries accelerating for a second consecutive report. Feedback to the survey continues to suggest that the recent increase in demand is due to a rush of buy-to-let investors looking to buy before the 3% stamp duty surcharge comes into effect in April. Critically, 74% of respondents expect there to be an increase of purchases by buy-to-let investors prior to the changes.

As activity in the housing market gathers pace overall, agreed sales have risen over the month at the fastest pace since April 2014. The picture across the UK is mixed but most areas have seen a rise in sales since the start of the year and further increases are expected.

Housing stock on the up

Supply has also gathered pace in the past two months but stock remains low with 46 properties per branch from 44.5, which is still 21% down compared to a year ago). Interestingly, the increase was largely concentrated in London where a significant lift in properties coming to the market was recorded in January (a net balance of +58% more respondents noted an increase). Elsewhere, sales instructions across the UK were much flatter.

Even with an improvement in supply, the rush to acquire buy-to-let property is pushing prices up, with 49% more surveyors reporting prices to have risen in January (typically our indicator has a six-month lead over ONS house price inflation). Looking ahead, house prices are projected to rise further over the next twelve months, with 72% more contributors expecting prices to increase rather than fall.

Rental supply still weak

In the lettings market, tenant demand increased once more, with all areas of the UK seeing a rise in interest from prospective tenants during the three months to January; at the same time, landlord instructions were broadly flat. This extends an uninterrupted run in which supply has failed to keep pace with demand stretching back to 2009. As a result, expectations point to continued rental growth in all parts of the UK both at twelve month and five year time horizons.